Seeking Alpha
Profile| Send Message|
( followers)  

By Darnell Brown

This article will examine 5 of David Tepper’s favorite stocks. David Tepper is the Founder of Appaloosa Management which is a hedge fund that manages $3 billion in assets. Mr. Tepper is considered to be a value investor who specializes in distressed companies.

Citigroup Inc (NYSE:C) Appaloosa Management holds 7,201,841 shares of Citigroup Inc. The average cost of these shares was $39.72. Mr. Tepper sold 459,845 shares of Citigroup during the second quarter of 2011. Citigroup is Appaloosa Managements largest holding with a value of $295 million.

Citigroup Inc. has a market cap of $87 billion, with a price to earnings ratio of 9.22. The stock has traded in a 52 week range of between $25.40 and $51.50. In the second quarter, the company reported revenues of $27.1 billion compared to revenues of $28.98 billion in the second quarter of 2010. The company reported second quarter net income of $3.34 billion compared to $2.7 billion in the second quarter of 2010. In 2010 net income was $10.6 billion up from $-1.61 billion in 2009.

Over the last three years, Citigroup Inc. has done a wonderful job of turning their company around. Net income which was $-29.4 billion in 2008 was up to $10.6 billion in 2010. In the second quarter of 2011, the company’s credit losses decreased by 35% from the second quarter of 2010. Citigroup seems to be moving forward just fine.

I believe that Citigroup stock is doing poorly because the banking industry as a whole is doing poorly. Citigroup has a price to earnings ratio of 9.22, and its forward price earnings ratio is 5.19. Citigroup is currently Appaloosa Management’s largest holding. I agree with David Tepper and believe that Citigroup is a stock worth owning. With a price to earnings ratio of 9.22, I think this stock is cheap.

The company has increased earnings in each of the last two quarters, and I believe that trend will continue. Investors are discounting this possibility, relative to other giants like Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC).

I rate Citigroup as a buy.

Pfizer Inc. (NYSE:PFE) Appaloosa Management holds 14,495,002 shares of Pfizer Inc. The average cost of these shares was $16.00. Mr Tepper sold 924,500 shares of Pfizer during the second quarter of 2011 and received an average price of $20.59. Pfizer is Appaloosa Managements second largest holding with a value of $298 million.

Pfizer Inc. has a market cap of $140 billion, with a price to earnings ratio of 16.77. The stock has been in a 52 week trading range of between $15.66 and $21.45. The stock is currently trading at $17.96. In the second quarter, the company had revenues of $17.0 billion compared to revenues of $17.3 billion in the second quarter of 2010. The company’s second quarter net income was $2.61 billion compared to net income of $2.48 billion in the second quarter of 2010.

Pfizer Inc. has had a flat bottom line for the last four years. Also, the company is about to lose the patent on its most lucrative drug Lipitor. Pfizer is not a stock that investors buy for its growth potential. Investors buy shares of Pfizer Inc. because it pays a handsome dividend. However since 2008, the dividend has decreased by 60% from $1.28 to $0.80. Pfizer is a company that is about to lose one of its largest sources of revenues (Lipitor) and has a shaky dividend.

I rate Pfizer as a hold.

Goodyear Tire & Rubber Company (NASDAQ:GT) Appaloosa Management holds 234,766 shares of Goodyear Tire. The average cost per share was $11.00. Mr. Tepper sold 2,906,350 shares of Goodyear during the second quarter of 2011 for an average price of $12.79. Goodyear is Appaloosa Managements third largest holding with a value of $234.76 million.

Goodyear Tire has a market cap of $2.8 billion, with a negative price to earnings ratio. The stock has traded in a 52 week range of between $9.10 and $18.83. The stock is currently trading at $11.39. In the second quarter, the company reported revenues of $5.62 billion which was up from the second quarter of 2010 revenues of $4.53 billion. Second quarter net income was $40 million which was up from $28 million in the second quarter of 2010.

Goodyear Tire reported second quarter net income of $40 million, which was a sharp decline from the first quarter net income of $103 million. One of the biggest reasons for the decline in net income was the increased cost of raw materials. Goodyear Tire will continue to pay higher raw material cost throughout the second half of 2011.

The second quarter earnings report, revealed a serious loss in this company’s earnings growth momentum. Perhaps that is the reason that David Tepper sold almost 3 million shares of the stock in the second quarter.

I rate Goodyear Tire & Rubber Company as a hold.

Valero Energy Corporation (NYSE:VLO) Appaloosa Management holds 7,762,004 shares of Valero Energy. The average cost per share is $27.00. Mr. Tepper bought 5,197,114 of Valero Energy shares during the second quarter of 2011 at an average cost of $26.73. Valero Energy is Appaloosa Managements fourth largest holding with a value of $198 million.

Valero Energy has a market cap of $11.6 billion, with a price to earnings ratio of 16.86. The stock has traded in a 52 week range of between $15.49 and $31.12. The stock is currently trading at $20.21. On July 26th the company reported second quarter revenues of $31.3 billion compared to the second quarter of 2010 revenues of $21.8 billion. The second quarter net income was $744 million compared to the second quarter of 2010 net income of $583 million.

Valero Energy’s earnings have varied widely from quarter to quarter, but the company’s earnings have been trending upward. The annual net income for 2010 was $324 million up from $-1.98 billion in 2009. The company has been able to take advantage of higher sale margins, as well as large discounts in the cost of their crude oil contracts.

The company should be able to continue to take advantage of these developments in the second half of 2011. David Tepper seems to believe in the company’s optimistic outlook, and purchased 5,197,114 shares in the second quarter of 2011.

I agree with David Tepper, and rate Valero Energy Corporation as a buy.

CVR Energy Inc. (NYSE:CVI) Appaloosa Management holds 7,334,534 shares of CVR Energy Inc. The average cost per share was $21.00. Mr. Tepper bought 5,778,160 shares of CVR Energy during the second quarter of 2011 at an average cost of $21.03 per share. The shares of CVR Energy Inc. are up by 22% since Appaloosa Management purchased them. CVR Energy Inc. just fell to Appaloosa Managements sixth largest holding behind Macys Inc. (NYSE:M). The value of Appaloosa Managements CVR Energy holdings is $180.5 million.

CVR Energy Inc has a market cap of $2.20 billion with a price to earnings ratio of 11.37. The stock has traded in a 52 week range of between $6.96 and $28.36. The current stock price is $25.62. On August 4th the company reported second quarter revenues of $1.45 billion which was up from revenues of $1.01 billion in the second quarter of 2010. The company’s second quarter net income was $125 million which was up from $115 million in the second quarter of 2010.

CVR Energy which primarily operates as an oil refiner is benefiting from higher sales margins. The company’s second quarter of 2011 revenues were up by 43% from the second quarter of 2010. Investors like what they see in CVR Energy and have flocked to buy this stock. The stock price has increased by 260.85% for the last 52 weeks.

In the second quarter of 2011, David Tepper purchased over 5 million shares of this stock. Other money manager including George Soros and David Loeb have also purchased large positions in this company. In spite of this stock’s impressive price run up, its valuation is relatively low with a price to earnings ratio of 11.45.

I rate CVR Energy Inc. as a buy.

Source: Thoughts On David Tepper's 5 Favorite Stocks