David Tepper is one of the most successful hedge fund managers. Appaloosa Management's portfolio has beaten the S&P 500 consistently by a large margin. David Tepper is a contrarian investor; his boldest move was to snap up investment bank stocks in 2009 while they were at the very bottom. During that period, all other investors were disposing their financial holdings like trash, but he was extremely bullish about distressed banks and financial institutions. He turned out to be right. In 2009, his portfolio returned a stunning 130%, beating S&P 500 by almost 100 points. 2010 return was 22%, which is still higher than the S&P 500.
Appaloosa Management's top 40 portfolio holdings are as follows:
|Stock||Value ($ Million)||% of Portfolio||% Change||YTD Return|
|Wells Fargo - PL (WFC.PL)||335.67||6.83%||14.88%||3.01%|
|Bank of America (BAC)||334.40||6.80%||11.54%||5.33%|
|Wells Fargo (WFC)||231.19||4.70%||16.37%||2.88%|
|International Paper (IP)||147.09||2.99%||178.57%||-0.74%|
|Micron Technology (MU)||142.47||2.90%||NEW||25.56%|
|Fifth Third Bancorp (FITB)||138.95||2.83%||-8.35%||-4.43%|
|Applied Materials (AMAT)||127.89||2.60%||141.74%||6.08%|
|Dean Foods (DF)||95.18||1.94%||NEW||14.48%|
|CF Industries (CF)||87.54||1.78%||0.00%||-5.67%|
|Johnson & Johnson (JNJ)||81.78||1.66%||0.00%||-4.45%|
|Lam Research (LRCX)||78.92||1.61%||319.42%||-1.87%|
|Semiconductor Hol. (SMH)||55.63||1.24%||0.00%||2.04%|
|General Motors (GM)||50.90||1.13%||NEW||-13.59%|
|Capital One (COF)||43.67||0.99%||-28.19%||20.06%|
|AMR Corporation (AMR)||36.25||0.92%||55.07%||-15.28%|
|Hartford Financial (HIG)||34.62||0.89%||-14.10%||-3.45%|
|Us Airways (LCC)||29.04||0.74%||27.91%||-10.49%|
|Royal Bank of Scot. (RBS)||22.94||0.59%||0.00%||15.61%|
|JPMorgan Chase (JPM)||22.94||0.57%||NEW||7.95%|
|Delta Air Lines (DAL)||19.62||0.54%||2.14%||-18.73%|
|Total / Average||4514.26||93.81%||2.65%|
The year-to-date weighted-average performance of the top 40 holdings is 2.03%, which is higher than the S&P 500 return of 1.6%. While that might not look impressive, Appaloosa Management was able to outperform the investment banks by a larger margin. The year-to-date mutual fund returns of JPMorgan (JPM), Goldman Sachs (GS), and Morgan Stanley (MS) was much lower. Unlike the investment banks, he does not have any SPY (SPY) or Apple (AAPL) stocks in the portfolio.
David Tepper holds $550 million in Wells-Fargo, followed by Citibank and Bank of America. While top-3 holdings in his portfolio are still mega-cap banking stocks, he reduced the weight of his financial holdings from 60% in 2009 to 30% in 2011. The latest 13F forms signal that he is getting bullish about healthcare and technology stocks. Pfizer (PFE) and Merck (MRK) are the largest healthcare holdings in his portfolio.
In the last quarter of 2010, David Tepper increased his Hewlett-Packard (HPQ) stake by 56% and Microsoft stake by 115%. According to the discounted future earnings model, both HP and Microsoft are among the top technology stocks with highest upside potential. However, both companies underperformed S&P 500 with negative returns since year-to-date.
A quick snapshot of his top holdings shows that David Tepper is extremely optimistic about the equity markets. He has reduced stakes in only 5 of his top 40 holdings. The average year-to-date return of these 4 holdings was -0.05%. Reducing Capital One (COF) by 29% was not a good decision since Capital One stocks gained by 20%. That move cost David Tepper $2.5 million in lost profits.
There is one stock that the investment guru is extremely bullish about: In the last quarter of 2010, he purchased $142.47 million Micron Technology (MU) shares, making it one of his top 10 holdings. That was a brilliant decision; Micron stocks gained 25% since January. Micron is a manufacturer and marketer of semiconductor devices. The company has a nice, specialty-market niche in nano-sized flash memories that are used in mobile devices. The current P/E ratio of 5.67 is one of the lowest in the industry. Micron is a highly profitable business with a net profit margin of 22.8%. The company has a strong balance sheet with a current ratio of 2.1. Last year, Micron acquired Numonyx Holdings for $1.2 billion. Numonyx was also a producer of nano-sized flash memories that are used in mobile phones, digital still cameras, MP3 players, and PCs. With the positive synergy of joint companies, Micron has the potential to dominate the micro-size memory and semiconductor markets. One might want to keep an eye on that company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.