Billionaire David Tepper’s Investment Strategy and 10 Favorite Stocks
In this piece, we will take a look at billionaire David Tepper's investment strategy and ten favorite stocks. If you want to skip our introduction of the billionaire investor and a background of what's happening in the stock market, take a look at Billionaire David Tepper's Investment Strategy and 5 Favorite Stocks.
After the corporate world, the stock market is one of the most lucrative sectors to become a billionaire. Investors and hedge funds who time their bets right and formulate the right strategies often end up becoming some of the richest people in the world.
One such individual is the billionaire David Tepper of Appaloosa Management. According to Forbes Magazine, he is worth a cool $18.5 billion as of July 2023. Mr.Tepper, like all of his peers, has decades of experience in the finance industry. He started his career in 1984 and would go on to work at the investment bank Goldman Sachs for a couple of years before taking a dive into the hedge fund world and setting up his own fund.
The billionaire set up Appaloosa Management in 1993 along with a business partner and spent most of his early days as a hedge fund manager by investing in junk bonds. Since then, Appaloosa has diversified its approach, and it had a portfolio worth $1.8 billion as of the first quarter of this year. The fund's total assets under management, on the other hand, stood at $14 billion by 2022 end. While the hedge fund still invests in distressed securities and bonds, it now also has money in options, futures, and warrants alongside other financial instruments. Appaloosa is also a star of the financial industry, with our research covering 15 Best Hedge Funds to Work For placing the fund at number 9 due to the $1.6 billion in gains that it made in 2022 at a time when the industry as a whole was dealing with stock market shocks. It also ranks at number 10 in our list of 15 Most Profitable Hedge Funds in the World due to having made a whopping $32.3 billion in net gains since inception.
So what is it investing in these days? Well, some of the hedge fund's largest investments are in mega cap technology stocks. These include Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), and Amazon.com, Inc. (NASDAQ:AMZN). If you've been following us regularly, you'd know that mega cap stocks are the star of the show in 2023 so far, and their outlandish share price gains in the first half of the year have propelled major stock indexes such as the NASDAQ 100 to new highs that have been unmatched for decades.
Safe to say, it's more likely than not that Mr. Tepper has had a great year on the stock market so far. And 2023 saw quite a bit of shakeup in his portfolio as well. Discounting puts, calls, bonds, notes, and ETFs, the billionaire investor's Q1 2023 investment portfolio had held shares of 25 companies. Out of these, four were new additions to the portfolio over the fourth quarter of 2022. The biggest inclusion was a $59 million investment in FedEx Corporation (NYSE:FDX), and the remaining three were all in notable technology companies, namely NVIDIA Corporation (NASDAQ:NVDA), Match Group, Inc. (NASDAQ:MTCH), and Tesla, Inc. (NASDAQ:TSLA). Additionally, Uber Technologies, Inc. (NYSE:UBER) also received a lot of attention, as Appaloosa Investment increased its investment in the company by a strong 390%.
Shifting our focus on the broader market and the latest bit of news on this front, these days investors seem to be taking bated sighs of relief as the Labor Department's latest jobs report for June was the first in more than a year that had actually undershot expectations. On Monday, as the second week of July kicked off, officials of the Federal Reserve mostly repeated previous sentiments that they will have to raise interest rates more to ensure that inflation comes below 2%. The markets as a whole were muted as they waited for the inflation data to hit the wire later in the week, a sentiment that Societe Generale's economist Kokou Agbo-Bloua aptly summarized in an interview with CNBC as:
I think we can potentially quote Winston Churchill when he said around the war against Germany in 1942 at the El Alamein battle that this is 'Now not the end. It's not even the beginning of the end, it is perhaps the end of the beginning,' when it comes to the war against inflation.
On the topic of a recession, Agbo-Bloua believes that it will take place in the first quarter of next year as a tighter monetary policy finally makes its mark felt in the economy.
Coming back to mega caps, since they are quite favored by our investor today, the big question on everyone's mind right now is whether they will sustain their H1 2023 rally into H2 2023. Well, Joe Terranova of Virtus Investment Partners believes that long term positions are being closed out, causing a recent drop in their price price. Adding to this, Steve Weiss of Short Hills Capital believes:
You know, look, I think the biggest vulnerability is in the large cap tech Because that's where on one hand, price vulnerability because that's where the action has been and that's where the major incidences of multiple expansion have occurred. Less so, there's less, and it sounds kinda strange, but, it's, sounds kinda strange because they have the best balance sheets, they have the best growth outlook. If you take a look at for example for what earnings forecasts are. Earnings forecasts for this quarter are looking to be down 7%! But, there are two sectors where it's looking to be up, and that is in technology. So, the strange thing is though, they are vulnerable because of price but not vulnerable through the fundamentals. So those are the concerns. So yeah, if the market rolls over, that's going to be painful for a lot of people.
Short Hills Capital has a close relationship with Mr. Tepper, since it was set up to manage his personal capital.
So what are David Tepper's top stock picks and how well they're doing? Read on below to find out the performance of firms such as Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOG), and Uber Technologies, Inc. (NYSE:UBER).
Our Methodology
To decipher David Tepper's investment strategy and how well it has performed, we used Appaloosa Management's SEC filings for 2023's March quarter and narrowed out the top ten investments. Then, the stocks' returns during Q2 2023 were computed to see how well they performed.
Billionaire David Tepper's Investment Strategy and 10 Favorite Stocks
10. Microsoft Corporation (NASDAQ:MSFT)
Appaloosa Management's Q1 2023 Investment: $74.9 million
Share Price Gains Since March 2023: 15%
Microsoft Corporation (NASDAQ:MSFT) is one of the largest technology companies in the world. It is in the limelight these days due to its partnership with OpenAI and ChatGPT. Its share price surge this year, along with that of other mega caps, has made the NASDAQ announce that it will rebalance the NASDAQ 100 index.
David Tepper's Appaloosa Management holds a $74.9 million stake in Microsoft Corporation (NASDAQ:MSFT) as of March 2023. The firm's largest hedge fund investor in our database of 943 hedge funds is Michael Larson's Bill & Melinda Gates Foundation Trust with a $11 billion investment and overall, 289 hedge funds have invested in Microsoft Corporation (NASDAQ:MSFT).
Microsoft Corporation (NASDAQ:MSFT) joins Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Uber Technologies, Inc. (NYSE:UBER) in the list of David Tepper and Appaloosa Management's top stock picks.
9. FedEx Corporation (NYSE:FDX)
Appaloosa Management's Q1 2023 Investment: $79.9 million
Share Price Gains Since March 2023: 10%
FedEx Corporation (NYSE:FDX) is a courier and freight transportation company. The firm's latest financial results saw it upgrade its 2023 outlook after announcing cost cutting measures.
55 of the 943 hedge funds part of Insider Monkey's database had bought FedEx Corporation (NYSE:FDX)'s shares in Q1 2023. During the same time period, Ken Griffin's Citadel Investment Group was the largest shareholder with a $467 million investment. Appaloosa Management had owned 350,000 FedEx Corporation (NYSE:FDX) shares during this year's first quarter for a $79.9 million stake.
8. EQT Corporation (NYSE:EQT)
Appaloosa Management's Q1 2023 Investment: $81.3 million
Share Price Gains Since March 2023: 26%
EQT Corporation (NYSE:EQT) is an oil and gas company with trillions of cubic feet of reserves. Its average share price target has a roughly $5 upside, and the shares have an average rating of Buy.
Mr. Tepper's hedge fund had owned 2.5 million EQT Corporation (NYSE:EQT)'s shares during 2023's March quarter, allowing it to own an $81.3 million stake. At the same time, 47 of the 943 hedge funds polled by Insider Monkey had also invested in the energy company, with Eric W. Mandelblatt's Soroban Capital Partners being the largest investor by owning 6.2 million shares worth $199 million.
7. Macy's, Inc. (NYSE:M)
Appaloosa Management's Q1 2023 Investment: $104.9 million
Share Price Gains Since March 2023: -8%
Macy's, Inc. (NYSE:M) is a retailer that sells different kinds of products and has a global presence. It has consistently beaten EPS estimates for the last four quarters, but only Goldman Sachs has kept a Buy rating in June and late May.
After digging through 943 hedge funds for their first quarter of 2023 portfolios, Insider Monkey discovered that 28 had bought Macy's, Inc. (NYSE:M)'s shares. Appaloosa Management had a $104.9 million stake during the same time period, and Macy's, Inc. (NYSE:M)'s biggest hedge fund shareholder is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital through its $184 million investment.
6. Energy Transfer LP (NYSE:ET)
Appaloosa Management's Q1 2023 Investment: $127.2 million
Share Price Gains Since March 2023: 3%
Energy Transfer LP (NYSE:ET) is a midstream oil and gas company that transports oil, gas, and related fuels. While its shares are rated Strong Buy, the firm has missed EPS estimates in three of its last four quarters.
Energy Transfer LP (NYSE:ET)'s largest hedge fund investor, out of the 35 that had bought its shares in March 2023 is David Abrams' Abrams Capital Management courtesy of a $222 million stake. Mr. Tepper's hedge fund owns 10 million shares worth $127 million.
Amazon.com, Inc. (NASDAQ:AMZN), Energy Transfer LP (NYSE:ET), Alphabet Inc. (NASDAQ:GOOG), and Uber Technologies, Inc. (NYSE:UBER) are some top David Tepper stock picks.
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Disclosure: None. Billionaire David Tepper's Investment Strategy and 10 Favorite Stocks is originally published on Insider Monkey.