By Darnell Brown
David Tepper is the billionaire founder of the Appaloosa Management hedge fund. Appaloosa Management was founded in 1993 and is now a highly successful money management company with over $16 billion under their management. Mr. Tepper is known as a value investor, and today we will review seven of his top picks.
Macy's Inc. (M) Macy’s Inc. is a retail department store that operates in 45 states.
Macy’s Inc. has a market cap of $11.88 billion and a price earnings ratio of 12.50. The company’s stock has performed quite well. The stocks 52 week trading range has been between $18.76 and $30.62. The current stock price is $27.83. On May 11th the company reported first quarter revenue of $5.89 billion, up 5.7% from the first quarter of 2010. Earnings per share was $0.30 compared to $0.09 in the first quarter of 2010.
Macy’s Inc. has done a terrific job of growing revenue, primarily at the expense of their competitors JC Penny (JCP) and Nordstrom (JWN). The company has been able to increase earnings by offering product lines that are regional specific and by reducing cost. This business formula has worked as the first quarter profits were up by over 300%. Macy’s has improved first quarter earnings from a loss of $4.78 billion for the year ending in January of 2009, to a profit of $847 million for the year ending in January 31 of 2011. It appears that Macy’s has gotten its sales and earnings moving in a positive direction. The company's management must feel good about the company’s future, because they recently doubled the amount of the dividend from $0.20 to $0.40. I like the direction that Macy’s is moving in. I rate Macy’s Inc as a buy.
Mueller Water Products (MWA) Mueller Water Products sales products, which help municipalities and water treatment facilities, distribute clean drinking water.
Mueller Water Products has a market cap of $393.36 million. The company has negative earnings currently, and the company lost money in each of the last two years. The stock's performance has been poor. The stock’s 52 week trading range has been between $2.21 and $4.80. The stock last traded at $2.53. Mueller Water Products lost $45.2 million in the year ending in September of 2010, which was an improvement from the $996.7 million it lost in the prior year.
Mueller Water stock has been under a lot of pressure. The company’s primary customers, government municipalities, have cut spending. This means that Mueller Water Products will probably lose money for the third consecutive year. The company reported third quarter earnings on August third. Revenue was flat at $366.7 million compared to $375.9 million in the third quarter of 2010. The company reported earnings per share of $0.02 which was the same as last year’s third quarter earnings per share. After the earnings conference, the stock immediately fell 13%. There is no way to tell when municipalities will be able to upgrade infrastructure and increase spending. I do not believe that business for this company will improve anytime soon. I rate Mueller Water Products stock as a hold.
C F Industries Holdings Inc. (CF) CF Industries Holdings Inc. is a seller of agricultural fertilizer in the Midwest and Canada.
CF Industries Holdings Inc. has a market cap of $11.08 billion and a price to earnings ratio of 17.39. The company’s stock has shown strong upward movement. The stock is in a 52 week trading range of between $78.90 and $163.25. The current stock price is $155.02. On May 5th, the company reported first quarter earnings of $280 million or $3.91 per share, which was up from $4 million and $0.09 cents a share, in the first quarter of 2010. It should be noted that a portion of the increase was due to the purchase of Terra Nitrogen (TNH).
It seems that the purchase of Terra Nitrogen will work out well for CF Industries. Revenues and earnings have increased without any interruptions. The company reports second quarter earnings on August 14th and analyst are bullish predicting earnings of $5.86 per share for the quarter and $16.91 a share for the year. It will be interesting to see, CF Industries second quarter earnings results. If the company beats estimates again, it will be the third time in a row. I believe the company will report strong earnings. If CF Industries can once again beat expectations, the stock’s price should go up.
United Continental Holdings (UAL) United Continental Holdings is an airline company that transports passengers as well as cargo. United Continental Holdings is the world’s largest airline company in terms of revenue and passenger miles. The company was formed on October 1, 2010, when United Airlines and Continental Airlines merged.
United Continental has a market cap of $6.0 billion with a price earnings ratio of 15.07. The company’s stock has not performed well. The 52 week price range has been between $16.45 and $29.75. The stock is currently trading at $18.13. For 2011, United Continental Holdings reported second quarter earnings of $577 million. By comparison, the company reported 2010 second quarter earnings of $273 million.
Even though earnings have increased United Continental Holdings stock price is down, and for a familiar reason. Once again airline companies are suffering because fuel cost are up and passenger demand is down. High fuel cost can really drag down profit margins for airline companies. It is estimated that over a one year period, every dollar increase in the price of a barrel of oil cost the airline industry about 1.6 billion. Fuel cost are currently quite high and will remain so into the foreseeable future. Adding to the misery is the fact that passenger demand is down. I rate United Continental Holdings as a hold.
E*Trade Financial Corporation (ETFC) E*Trade Financial Corporation is a financial services company that offers online brokerage and banking services.
E*Trade has a market cap of $3.99 billion with a price earnings ratio of 48.98. The stock's 52 week trading range is between $12.24 and $18.13. The stock is currently trading at $14.84. On July 21st E*Trade reported second quarter earnings. Revenues for quarter two, 2011 were $518 million and earnings were $47 million or $0.16 per share. Compared to the second quarter of 2010, revenues were $534 million with earnings of $35 million or $0.12 per share.
Over the last four years, E*Trade has had flat revenues. Even though the company business has not done well, the stock price has shown tremendous improvement. On May 14, 2010, the stock closed at a lowly $1.57 (before the June 10, 2010 10:1 reverse split). Over the course of the last year this stock has traded as high as $18.13. The reason that the stock has been so volatile is because the company has been the subject of acquisition rumors. TD Ameritrade (AMTD) seems to be the most likely buyer, however the Charles Schwab (SCHW) has been mentioned as a possible buyer. I believe that with a price earnings ratio of 48.98, the price of the acquisition premium has already been built into the stock’s valuation. I rate E*Trade as a hold.
Valero Energy (VLO) Valero Energy operates 14 petroleum refineries.
Valero Energy has a market cap of $13.26 billion with a price to earnings ratio of 19.25. The stock has been a mediocre performer and is currently priced at $19.25. Over the last 52 weeks, the stock has ranged between $15.49 and $31.12. Valero reported second quarter earnings of $745 million or $1.30 per share. This was an increase over second quarter of 2010 earnings of $520 million or $0.92 per share.
The stock of Valero Energy is in the middle of its 52 week trading range. This is despite the fact that the company’s overall business performance has been improving. The business has improved because of higher demand and higher profit margins. Valero Energy Corporation seems to be moving in a positive direction. If the price of gasoline remains at current levels, earnings will increase and the stock price will go up. I rate Valero Energy Corporation as a buy.
Goodyear Tire and Rubber Company (GT) Goodyear Tire and Rubber Company is a manufacturer of tires.
Goodyear Tire and Rubber Company has a market cap of $3.79 billion with negative earnings. Goodyear has not made a profit since 2007. The stocks 52 week trading range has been between $9.10 and $18.83. Goodyear’s stock is currently trading at $15.50. On July 28th, the company reported revenue of $5.6 billion up from $4.5 billion in the second quarter of 2010. Second quarter net earnings were $40 million or $0.16 per share, up 42% from the $28 million or $0.11 per share reported in the second quarter of 2010.
On July 28th when Goodyear reported second quarter earnings, the stock price dropped 7.2%. The price drop was because the company reduced its earnings outlook. It cited lower expected replacement tire sales and increased material cost as the reason. Since this stock got past it initial hit on July 28th the stock has held up pretty well. The company’s second quarter profits were higher because the sale of their higher priced premium tires increased. If this trend continues, the company should continue to increase its profits. I rate Goodyear Tire and Rubber as a buy.