The Top Holdings Of David Tepper's Appaloosa Management

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 |  Includes: C, CF, CVI, GT, IP, M, MOS, PFE, UAL, VLO
by: The Analyst Hub

Appaloosa Management, L.P. is a Short Hills, NJ-based hedge fund management firm founded by David A. Tepper. The firm manages over $4 bn in equities and has beaten the S&P 500 consistently by a large margin.

Year

Return (%)

S&P500 (%)

Excess Gain (%)

2010

22

15.1

6.9

2009

132.72

26.5

106.2

2008

-26.72

-37

10.3

2007

8.88

5.61

3.3

2006

25.86

15.79

10.1

Click to enlarge

Investment Strategy: 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. His bet proved correct and his portfolio returned a stunning 132.72%, beating S&P 500 by over 106 percentage points.

The following is a list of Appaloosa’s top ten holdings:

Stock

Symbol

Shares Held - 06/30/2011

% of Portfolio

Change in shares

Citigroup, Inc.

C

7,201,841

7.57

-69,415,015

Pfizer Inc.

PFE

14,495,002

7.53

-924,500

Goodyear Tire & Rubber Co.

GT

14,199,151

6.01

-1,048,852

Valero Energy Corp.

VLO

7,762,004

5.01

5,197,114

Macy's, Inc.

M

6,312,625

4.66

-400,000

CVR Energy, Inc.

CVI

7,334,534

4.56

5,778,160

Mosaic Co.

MOS

2,390,027

4.08

2,390,027

International Paper Co.

IP

5,097,067

3.84

-641,445

United Continental Holdings

UAL

5,565,753

3.18

-172,000

CF Industries Holdings, Inc.

CF

867,496

3.1

-62,700

Click to enlarge

Source: 13F filing

My favorite long candidates among above stocks are Mosaic Co., CF Industries and International Paper.

Mosaic Co. and CF Industries are fertilizer companies. I would recommend buying them despite of the broader macro concerns.

During the last downturn in 2008, excess inventory in the supply chain coupled with anticipation of decline in fertilizer prices by farmers caused fertilizer producers and retailers to take a hit. However, the current situation is different. Due to the hit fertilizer retailers had taken in 2008, they were cautious this time and have not overstocked fertilizer inventories. Thus, supply chain remains very tight.

Further, grain prices corrected very sharply along with other commodities during the last downturn. Thus, farmers anticipated that fertilizer prices will come down as well. I don't see a similar commodity correction this time given the excess amount of money supply that has entered the system thanks to bailouts, quantitative easing and stimulus. In particular, when we talk of food grains where demand is inelastic, the trend is likely headed up in the mid-long term even if we consider a prolonged recession scenario.

Fertilizer prices are usually correlated with food prices and I believe fertilizer companies like Mosaic and CF Industries are the best bet in the long term to hedge one's portfolio against inflation in these recessionary times.

International Paper Company is a global paper and packaging company, with markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. The company operates in five segments: Industrial Packaging, Printing Papers, Consumer Packaging, Distribution and Forest Products. International Paper's EPS forecast for the current year is $2.98 and next year is $3.25. According to consensus estimates, its top line is expected to grow 5.40% in the current year and 3.20% next year.

Recently, International Paper and Temple-Inland Inc. (NYSE:TIN) announced that they have entered into a definitive merger agreement under which International Paper will acquire all of the outstanding common stock of Temple-Inland for $32.00 per share in cash, plus the assumption of $600 million in Temple-Inland's year-end debt. It is a big positive for both the companies, as well as overall packaging industry, due to its increased consolidation. The deal will be accretive from first year, and after closing IP estimates annual synergies of $300 million within 24 months. Increased consolidation of the industry would be a positive for container board prices, and one can expect a container board price hike in early 2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.