David Tepper's Low P/E Stock Picks

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Includes: AAPL, AMAT, C, GM, IP, M, MOS, MSFT, VLO
by: Insider Monkey

Stocks with low P/E ratios are more likely to be undervalued by the market and are relatively safer to invest in. These stocks have more potential in price growth and are therefore popular among value investors. In this article, we will focus on the low P/E stocks in the portfolio of David Tepper’s Appaloosa Management.

Tepper is an MBA from Carnergie Mellon University, whose Tepper School of Business is named after David Tepper. After graduation, Tepper worked for a mutual fund and Goldman Sachs. Later in 1993, Tepper founded Appaloosa, which made $4 billion in 2009 and returned around 30% in 2010. Now, Tepper is ranked as the 258th richest person in the world. We believe that by focusing on Tepper’s stock picks, especially stocks with low P/E ratios, investors are more likely to beat the market.

Below, we compiled a list of low P/E ratio stocks in the 13F portfolio of Appaloosa Management at the end of September. All US companies have at least $10 billion market cap and P/E ratios lower than 15. The market data is sourced from Finviz.

Company Name

Ticker

Value

PE

VALERO ENERGY

(NYSE:VLO)

98836

5.21

MACYS INC

(NYSE:M)

86502

11.37

INTERNATIONAL PAPER

(NYSE:IP)

77108

8.77

CITIGROUP INC

(NYSE:C)

64556

7.08

APPLIED MATERIALS

(NASDAQ:AMAT)

42894

7.12

MICROSOFT CORP

(NASDAQ:MSFT)

42610

9.31

MOSAIC CO.

(NYSE:MOS)

36091

7.71

APPLE INC

(NASDAQ:AAPL)

14530

13.74

GENERAL MOTORS CO

(NYSE:GM)

4728

4.39

Valero Energy Corp (VLO) is the biggest position in Tepper’s portfolio among the stocks listed above. As of September 30, Appaloosa Management invested nearly $100 million in VLO. It has a market cap of $11.4B and a low P/E ratio of 5.21. VLO returned 15.22% since the end of September, doubling the return of the market. Cliff Asness’ AQR Capital Management also had $40+ million invested in VLO at the end of September.

Another stock with P/E ratio lower than 10 is International Paper Co (IP), in which Tepper’s Appaloosa Management invested $77 million. IP has a market cap of $11.9B and a P/E ratio of 8.77. Since the end of September, it returned 18.40%, versus the 7.59% for SPY. Jim Simons’ Renaissance Technologies initiated a brand new $20 million position in IP shares during the third quarter.

Tepper is also bullish about Microsoft Corp (MSFT) and Apple Inc (AAPL), two relatively undervalued mega-cap technology stocks. MSFT’s P/E ratio is 9.31 and AAPL has a P/E ratio of 13.74. Tepper’s Appaloosa Management reported to own $43 million of MSFT and $15 million of AAPL at the end of the third quarter. Both stocks underperformed the market in the fourth quarter. MSFT returned 3.60% and AAPL lost 0.30% so far since the end of September, while SPY gained 7.59% in the same period. Both stocks are very popular among hedge funds. Jean-Marie Eveillard, Ken Fisher, and Boykin Curry are bullish about MSFT. Rob Citrone, Stephen Mandel, Chase Coleman, and David Einhorn have large positions in AAPL.

Other low P/E stocks Tepper is bullish about include Macys Inc (M), Citigroup Inc (C), Applied Materials Inc (AMAT), Mosaic Co (MOS), and General Motors Co (GM). Some of them, such as M, generated solid returns so far in the fourth quarter. Though others underperformed the market since the end of September, it is very likely that they are currently trading at a discount as their P/E ratios are low. We strongly encourage investors to do some in-depth research of these stocks for their portfolio.

Disclosure: I am long MSFT, C.