Appaloosa Management’s Stock Holdings & Analysis

Updated on November 27th, 2020 by Nikolaos Sismanis

Appaloosa Management was founded in 1993 by David Tepper and Jack Walton. The firm used to operate as a junk bond investment company in the 1990s but took a turn through the 2000s, to become a hedge fund.

Appaloosa Management has been one of the most successful hedge funds by specializing in public equity and fixed income markets around the world, delivering jaw-dropping returns to its institutional investors during times of distress.

As of its last 13F filing, the fund had around $5.6 billion in managed 13F securities under management, a 89.6% increase from its previous quarter amid higher capital allocation in its public-equity holdings, possible due to acquiring more clients.

Investors following the company’s 13F filings over the last 3 years (from mid-November 2017 through mid-November 2020) would have generated annualized total returns of 7.9%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 12.2% over the same time period.

 

Note:  13F filing performance is different than fund performance.  See how we calculate 13F filing performance here.

Click the link below to download an Excel spreadsheet with metrics that matter of Appaloosa Management’s current 13F equity holdings:

 

Keep reading this article to learn more about Appaloosa Management.

Table Of Contents

David Tepper

Little can be said about Appaloosa Management without mentioning its legendary manager David Tepper. Mr. Tepper has been one of Wall Street’s highest-paid hedge fund managers of the past decade, delivering market-beating returns during recessionary times. His net worth is currently around $12.7 billion. His fortune was made through Appaloosa, having the majority of his assets attached to the fund. Mr. Tepper has created most of his and Appaloosa’s value by navigating the fund’s allocations during times of distress.

In 2001, for example, when the market was suffering massive losses amid the dot com bubble, Mr. Tepper generated a 61% return by focusing on distressed bonds. During the Great Financial Crisis, he embraced the “buy when there is blood on the street” mentality, by purchasing distressed financial stocks. While everybody else was dumping their shares, Tepper was scooping up shares, including his famous play of buying Bank of America shares for $3 each and AIG’s debt.

His bold bets paid off massively. From 2009 to 2010, the fund’s assets under management grew from $5 billion to $12 billion. Around $4 billion of these gains were added to Mr. Tepper’s net worth, making him the highest earner of the recession and forming the majority of his wealth.

Last year, Mr. Tepper announced his retirement, to pursue owning the Carolina Panthers football team, which he bought in 2018 for a record $2.3 billion. of his old clients, most of Appaloosa’s assets left the fund; hence its current reduced AUM of $5.6 billion.

Appaloosa Management’s Current Major Investments

Appaloosa Management’s long-term strategy has focused on undiversified concentrated investment positions, with multi-bagger potential. This investment philosophy seems to be the case well after Mr. Tapper’s departure, as the fund’s nearly $5.6 billion-worth public equity portfolio consists of only 28 stocks, with the top 5 accounting for around 55% of its total holdings.

Source: Company Filings, Author

The fund’s 10 largest investments are the following.

PG&E Corporation (PCG)

Unexpectedly ascending as Appaloosa’s largest holding is PG&E Corporation since the hedge fund increased its position by 803% from its previous f13 filing. The massive stake increase accounts for a significant 15.1% of Appaloosa’s public-equity holdings and around 4% of PCG’s total shares outstanding. We believe that by purchasing PCG, Appaloosa aims to benefit from the company’s currently depressed situation, facing a potential bankruptcy amid California’s wildfires. The fund’s average buying point seems to be around $10.82, which indicates considerable short-term gains at the stock’s current price of $12.70. Should the company survive its current headwinds, Appaloosa is likely to have made one of its most successful distressed equity investments, buying shares near their 50-year lows. Still, the company remains very risky, has suspended dividends as per its current situation, and is unlikely that shareholders will see any kind of tangible returns in the medium term. Hence retail investors should be very aware of the underlying concerns before allocating capital to the company.

Amazon (AMZN)

Jeff Bezos’s e-commerce behemoth used to take up nearly ⅓ of Appaloosa’s at a couple of quarter earlier. With the fund’s traditional strategy of concentration, management’s faith placement in Amazon has been typical amongst multiple funds as of late. The company is taking over the world and seems unstoppable both in terms of its physical and digital infrastructure capabilities.

Mr. Jeff Bezos plans to have the company undergo another investment cycle and avoid maximizing profitability once again in the medium term, which is just another testament to Amazon’s long-term perspective.

However, as Appaloosa has diversified its portfolio further during the quarter, while also trimming its Amazon position by around 10%.

As a result, the e-commerce giant now accounts for around 11.3% of its holdings.

Micron Technology (MU)

Micron Technology’s stake was once again increased, this time by 31%, currently accounting for around 12.26% of the company’s public equity investments. The stock has experienced a spectacular rally over the past 4 years, as the demand for its semiconductors has been explosive. Analysts expect the company’s earnings to snowball in the medium-term. While the stock is considered speculative, its robust profitability over the last several years has proven bears and short-sellers wrong. While many predicted that the company’s top and bottom line would suffer due to the pandemic, Micron posted record Q2 and Q3 earnings, booking around $1.7 billion in profits in H1-2020 alone.

We remain bullish on the semiconductor specialist, though investors must be aware of its cyclical revenue nature before deploying capital in its shares.

Twitter Inc (TWTR)

Jack Dorsey’s social media company occupies the eighth-largest position of Appaloosa’s portfolio with a nearly $210 million stake. The company has struggled to deliver consistent, investors-friendly financial results over the years, despite its success as a social media platform.

However, with its recent plans to develop a subscription service, investor interest has been reignited over the potential of recurring revenues flowing into the social media firm.

To book some profits out of the market’s excitement for the future of Twitter, Appaloosa trimmed its stake by 16% during the quarter, as shares have gained nearly 50% over the past 6 months.

It’s worth noting that Twitter’s monetization issues may continue to persist, leaving current investors to future potential valuation risks. For those looking to get exposure to the social media space, Facebook still remains the best option, in our view.

MasterCard (MA), Visa (V) & PayPal (PYPL)

Last quarter, Appaloosa started a buying spree in these three fin-tech giants, building up almost equally-sized positions in these tech behemoths. The three stocks collectively account for around 7.2% of its holdings, while all three positions were initiated during this past quarter.

Both Visa’s & MasterCard’s latest investor updates point towards almost a full recovery in the volume of global financial transactions, despite COVID-19. With a surge in e-commerce volumes, the payments-processing duo seems to be getting more than compensated for the loss in retail volumes. Despite the prolonged rally in the tech sector, Visa & MasterCard have not entirely followed suit, trading near their pre-COVID-19 levels. As a result, investors probably still have the opportunity to grab some shares at a reasonable price.

When it comes to PayPal, the company’s shares have skyrocketed to new highs after the company reported record Q3 profits of ~$1.02 billion. While we remain optimistic in PayPal’s future, powered by the ever-increasing trend of e-payments, the stock’s valuation may have outrun its financials. At a P/E ratio of around 80, investors may be overpaying for this quality company, and should therefore be aware of the risks of potential valuation compression.

Appaloosa trimmed MasterCard, Visa, and PayPal by 18%, 19%and 29% respectively booking nearly double-digit gains within a single quarter.

Alibaba Group (BABA)

Alibaba was Appaloosa’s largest equity holding as of its previous f13 filing after management had increased the fund’s stake by a massive 49%. In this quarter, Alibaba’s stake was slashed by 34%. Shares rallied by more than 10% during this short period due to the company surprised investors with another blockbuster quarter, featuring $21 billion in its bottom line.

The stock currently weighs around 9.28% of its total holdings and is still Appaloosa’ second-largest holding as the fund has been capitalizing on the ongoing e-commerce trend expanding throughout Asia. With an average estimated buying price below $200, Appaloosa has profited massively off of its consistent $BABA stake increases (and sales). Shares are currently trading near all-time highs, at around $275/shares, as the company has been pleasing investors with spectacular financials. Over the past twelve months, Alibaba has achieved net profits of nearly $19.4 billion, ranking as one of the most profitable companies in the world.

Still, investors should be aware of the underlying risks involved with Chinese equities, including the potential for a NASDAQ delisting.

T-Mobile (TMUS) & AT&T (T)

Appaloosa trimmed its TMUS stake by 11% and slashed its AT&T stake by nearly 50% during the quarter, most likely to diversify its massive increases form last quarter.

With T-Mobile acquiring Sprint, the company should be able to actively compete with AT&T and Verizon. As a result of the synergies to be unlocked, the company should undergo a growth phase over the next few quarters. Meanwhile, AT&T’s robust cash flows should provide the company with some solid dividend payments. The Dividend Aristocrat currently yields around 7.15%. While it may not be the most exciting investment in the world, AT&T provides consistency, dividend safety, and the potential to grow, due to its Warner Media/ HBO acquisition.

The telecom giants account for around 13% of Appaloosa’s holdings.

Facebook (FB) & Alphabet (GOOGL)

Appaloosa trimmed its Facebook stake by around 20%. Still, shares account for around 8.18% of the fund’s holdings. With growing financials, one of Wall St.’s healthiest balance sheet, and the best platform for advertisers to utilize, Facebook remains an attractive pick, at a reasonable valuation.

The company reported an all-time high bottom line of $7.85 billion, and is only trading at 31 times its underlying earnings, despite its rapid growth.

Similarly, Appaloosa trimmed its position in Alphabet by around 22% as well, likely in efforts to diversify its portfolio against tech’s never-ending rally. The company is another example of showcasing world-class financials and robust growth. Further, the stock trades at an attractive valuation of around 34 times the company’s underlying earnings, which makes it one of the more reasonably-priced technology picks as of lately.

Final Thoughts

Appaloosa Management has had a prosperous past, with multiple achievements under Mr. Tepper’s leadership. The firm has spoiled its investors with jaw-dropping returns during adverse economic times. Mr. Tepper’s departure marks a new era for the fund.

While the firm’s public holdings have slightly lagged the market over the past three years, it’s still early to judge, as the firm could once again shine during a potential future recession.