Famed billionaire hedge fund manager David Tepper was in the news in a big way last week. The money manager has made several good macro calls over the years and the market reacted negatively when he stated he was "nervous" on the market at current levels.
While his caution is notable since he is the nation's highest paid hedge fund manager, I find what Mr. Tepper is doing within his fund much more interesting. The 13F was recently filed for his Appaloosa Management fund and it shows a significant increase in his holdings of two online plays. Both seem attractive at these levels given their valuation and growth prospects.
Mr. Tepper initiated a stake in online travel purveyor Expedia (EXPE). His initial position is worth some $50 million. Liberty Interactive (LINTA) also has a significant stake in Expedia and owns over 10% of the shares outstanding. Liberty is legendary telecom & media investor John Malone's vehicle and is a beneficial owner in Expedia.
Expedia is showing solid revenue growth with sales growing in the high teens. Earnings are tracking towards a 20% year-over-year gain this year and the company has easily beat earnings estimates each of the past three quarters.
Given its current growth trajectory, Expedia's valuation of just over 18x forward earnings seems extremely reasonable. The overall market is going for 16x to 17x forward earnings and is not seeing anywhere close to Expedia's growth. The shares are even cheaper given the company has almost $1 billion in net cash or over 10% of its current market capitalization.
The amount of Appaloosa Management holdings in Google (NASDAQ:GOOG) (GOOGL) almost doubled in the quarter as his stake in the online search giant rose by more than 85% over previous levels. The stock is offering a nice entry point here after the stock has fallen more than 10% recently as it has been caught in the sector rotation occurring out of some of the market's fastest growing plays.
Revenues are tracking to slightly better than 10% growth this year but analysts see that growth accelerating next year and the consensus has the search giant seeing sales growth in the high teens in FY2015. The company's earnings should grow better than 20% year-over-year in 2014.
The stock is going for 20x forward earnings. However, taking out the company's net cash (~15% of market capitalization) and the shares are selling right in line with the overall market multiple even with much better growth prospects. Getting the undisputed leader in both online and mobile search without paying a premium sees like a good long-term decision here.
Disclosure: I am long GOOGL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.