Updated on December 11th, 2021, 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 evolved through the 2000s to become a more diversified hedge fund.
It 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 ~$4.2 billion in managed securities under management, a 30% decline from its previous quarter amid lower capital allocation in its public-equity holdings, possibly due to losing some clients.
Investors following the company’s 13F filings over the last 3 years (from mid-November 2018 through mid-November 2021) would have generated annualized total returns of 20.83%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.51% 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
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 $14.5 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 Recession, he embraced the “buy when there is blood in the streets” 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 (BAC) shares for $3 each, as well as 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. A portion of Appaloosa’s assets left the fund, which may explain its current reduced AUM of $4.8 billion.
Appaloosa Management’s New Buys & Sells
During its latest 13F filing, Appaloosa Management executed the following notable portfolio adjustments:
- Alight Inc. (ALIT)
- Walmart Inc (WMT)
- Emerson Electric Co. (EMR)
- BP Plc ADR (British Petroleum) (BP)
- Royal Dutch Shell plc Class B ADR (RDS.B)
- Netflix Inc (NFLX)
- ViacomCBS Inc. Class B (VIAC)
Appaloosa Management’s Current Major Investments
Appaloosa Management’s long-term strategy has focused on 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 ~$4.2 billion-worth public equity portfolio consists of only 32 stocks, with the top 5 accounting for around 42.9% of its total holdings.
Source: 13F Filings, Author
The fund’s 10 largest investments are the following:
Alphabet offers several well-known products, such as Google, Android, Chrome, Google Cloud, Google Maps, Google Play, YouTube, as well as technical infrastructure. While the company’s expansion has lasted for more than a decade and a half, it is still a high-growth stock.
Revenue growth has re-accelerated, with its most recent quarter posting growth of nearly 41%, despite the deceleration caused during the first couple of quarters during the initial pandemic outbreak. The company is one of the most attractively priced stocks in the sector as well, trading at around 27.3 times its forward earnings, despite its consistent growth, massive moat, and strong balance sheet.
With its robust profitability, Alphabet has accumulated a cash and equivalents position of $142 billion. As a result, the company can comfortably afford to burn up cash for its long-term bets such as Waymo, and in the meantime return ample dollars back to its shareholders through buybacks. Alphabet has repurchased nearly $44.7 billion worth of stock over the past year, retiring shares at an all-time high rate.
Appaloosa held its position relatively steady during the quarter. The stock accounts for around 11.8% of its portfolio.
Meta Platforms, Inc. (FB)
Appaloosa decreased its Meta Platforms stake by around 5%, though the stock is still the portfolio’s second-largest holding. Meta shares account for around 10.7% of the fund’s holdings. With strong growth, a healthy balance sheet, and the best platform for advertisers to utilize, Meta remains an attractive pick at a reasonable valuation.
Meta is a tremendous cash cow, but with a problem. With strong financials, a healthy balance sheet, and the best social media platform for advertisers, Meta has been dominating the social media industry. The company has reported an all-time high bottom line of $40.3 billion over the past four quarters, amid great user growth, notwithstanding now decelerating to the single digits.
For these reasons, it would not be a complete surprise if Meta paid a dividend at some point in the future.
On the other hand, the stock has failed to attract a higher multiple, as the steep scrutiny it has faced over the past few years have had an impact on the valuation. The stock is only trading at around 22.6 times its underlying earnings, despite its rapid growth.
With its ARPU (average revenue per user) still very strong, Meta’s financials are more than likely to continue expanding rapidly. Meta’s investment case today does not only include the potential for a significant upside but also comes with a great margin of safety.
If such a valuation expansion never appears, and Meta continues to trade at a forward P/E of around 22.6, at an EPS growth rate of 20%-30% in the medium term (which the current user and APRU growth trajectory could easily sustain), investors should achieve equally satisfactory returns with a constant valuation multiple.
T-Mobile US, Inc. (TMUS)
T-Mobile has had a place in Appaloosa’s portfolio since 2017. With T-Mobile acquiring Sprint last year, the company should be able to actively compete with AT&T (T) and Verizon (VZ). As a result of the synergies to be unlocked, the company should undergo a growth phase over the next few quarters. Revenues rose by 1.7% to $19.6 billion in the most recent quarter, with service revenues growing to $14.7 billion.
Management raised its merger synergy forecasts following the ongoing integration progress. Around 50% of Sprint’s customer traffic is now carried on the T-Mobile network, while approximately 20% of Sprint customers have been moved over.
It now expects merger synergies of $2.9-$3.2 billion for FY2021 (up from $2.8-$3.1 billion), which amounts to double last year’s synergies. Due to increased investor expectations, the stock’s valuation multiple has expanded, currently at a forward EV/EBITDA multiple of 8.7.
The stock currently occupies around 8.0% of Appaloosa’s portfolio. It is now the fund’s third-largest holding.
Amazon.com Inc. (AMZN)
Amazon is Appaloosa’s fourth-largest holding, comprising 6.7% of its total portfolio. The fund trimmed its position by 44% during the last quarter.
Amazon delivered another solid quarter recently, with Q3 AWS net sales up 38.7% YoY to $16.1 billion, topping the $15.4 billion consensus estimate. Revenues grew to $110.8 billion, a 15.2% increase YoY, contributing to all-time high LTM (last twelve months) sales of $457.6 billion.
Due to scaling its operations, the company’s net income margins reached 5.73% during the past twelve months, turning Amazon into an increasingly profitable company. The stock is currently trading at a P/E of 84.1 based on this year’s projected net income, but considering its EPS growth, the company will likely grow into its valuation.
The stock has had a place in Appaloosa’s portfolio since Q1-2019.
Macy’s, Inc. (M)
Macy’s climbed to the company’s top ten holdings after the fund increased its position in the stock by 93% during Q3.
Macy’s reported its third-quarter earnings results on November 18. Revenues totaled $5.4 billion during the quarter, which beat consensus estimates by $210 million. Macy’s revenues were up by 36% versus the previous year’s quarter, which had seen a large pandemic impact.
The revenue increase can be explained by the easing coronavirus pandemic in the US. This resulted in a major margin improvement compared to the previous year’s quarter. Macy’s generated earnings-per-share of $1.23 during the third quarter.
The company has beaten estimates consistently over the past few quarters as illustrated below, which is rather nice considering that its investment case still holds notable risks.
The stock accounts for 5.8% of Appalossa’s portfolio
Occidental Petroleum Corporation (OXY)
On August 8th, 2019, Occidental acquired Anadarko. Occidental pursued this acquisition thanks to Anadarko’s promising assets in the Permian. Occidental expects to achieve $3.5 billion in annual synergies.
However, this is a huge acquisition, as the $38 billion value of the deal is greater than the current market cap of Occidental. Occidental secured $10 billion in funding from Berkshire Hathaway (BRK.A) in exchange for preferred shares, which receive an 8% annual dividend.
In early November, Occidental reported (11/4/21) financial results for the third quarter of fiscal 2021. The average realized prices of oil and gas grew 7% and 29%, respectively, over the prior quarter while the chemical segment posted record earnings thanks to wide margins amid strong pent-up demand.
It’s worth noting that the stock trades relatively cheaply from a forward EV/EBITDA perspective despite the risks attached to its investment case.
Occidental is Appaloosa’s sixth-largest holding. The fund boosted its position by 16% during the last quarter.
Micron Technology (MU)
Despite Appaloosa trimming its Micron Technology stake by 51%, the company is currently the fund’s fourth-largest holding, accounting for around 5.7% of its public equity investments. The stock has experienced a spectacular rally over the past 4 years, as the demand for its semiconductors has been explosive.
While the stock is considered speculative, its robust profitability over the last several years has proven bears and short-sellers wrong. Many had predicted that the company’s top & bottom lines would suffer due to the pandemic.
However, Micron posted a robust FY2020 net income of $2.69 billion. The company is expected to produce EPS of $11.07 next year. This implies a forward P/E in the single digits which indeed suggests a relatively fair multiple for a semiconductor company.
Still, the industry remains wildly cyclical, which could translate to volatile future performance for MU’s shareholders.
The Goodyear Tire & Rubber Company (GT)
The Goodyear Tire & Rubber Company is one of the leading tire manufacturers globally. The Goodyear brand is also one of the most recognizable brands in the world. The company’s history spans 122 years, through business cycles, world wars, and the COVID-19 pandemic.
The company has experienced declining revenues over the past decade while struggling to deliver adequate profitability levels. The resulted in Goodyear suspending the dividend last year, and this is likely to remain the case at least until the company’s financials improve.
Appaloosa initiated a position in the stock in Q1-2020, and last quarter it boosted its equity stake by 63%. It is now its eighth-largest position accounting for 3.2% of its public equity portfolio.
D.R. Horton, Inc. (DHI)
D.R. Horton was founded in 1978 in Fort Worth, Texas. The company has been the largest home builder by volume since 2002. The company operates in 91 markets in 29 states across the U.S. The company’s brand portfolio includes D.R. Horton (quality & value brand), Express Homes (first-time home buyer), Freedom Homes (active adult), and Emerald Homes (luxury), which constructs and sells high-quality homes with sales prices ranging from $150,000 to over $1 million.
D. R. Horton’s earnings have grown very consistently since 2011, once the company recovered from the financial crisis. Still, the corporation has grown earnings by 36% on average per year over the last nine years. In the past five years, this growth rate has been 37% on average per year.
The strong demand for housing does not look like it will let up soon. However, the business is cyclical, so we estimate an earnings growth rate of roughly 7%. Earnings could come in even stronger if the housing boom continues and interest rates stay as low as they are, though rate increases are anticipated in 2022.
The company has a large backlog of homes under contract, currently at 26,221 homes. These homes experienced a 16% year-over-year increase in value last quarter, to $9.5 billion. The company’s share count has grown over the long term, however since 2018 the company has made efforts to reduce its share count and we see this as another minor tailwind to earnings in the coming years.
The threat of rising interest rates could wear on the company’s results, as the demand for homes and the average sale price could stagnate or drop. The corporation’s dividend has grown by 20% on average over the past five years, and we estimate it will grow by around 10% in the next five years.
The stock is also trading at a forward P/E of just 7.7 which is a rather attractive valuation multiple.
Appaloosa initiated a position in D.R. Horton as recently as Q1-2021. It is now the fund’s ninth-largest holding.
Found amongst the top holdings of the majority of the funds we have covered, Microsoft is Appaloosa’s tenth-largest holding, occupying ~2.7% of its portfolio. The fund trimmed its position by 4% during the quarter.
Microsoft is a mega-cap stock with a market capitalization of $2.4 trillion.
Supported by the company’s strong profitability, management has been consistently raising buybacks over the past decade to further reward its shareholders. The amount allocated to stock repurchases has reached new all-time highs over the past four quarters, at nearly $28.3 billion.
Revenue growth remains in the double-digits, so it’s likely to see capital returns accelerating moving forward. The company is also growing the dividend at a double-digit rate, though at the current yield, which stands below 1%, investors should expect the majority of their future returns in the form of capital gains.
Despite that, Microsoft’s cash position has been growing continually, with the company currently sitting on top of a massive $130.5 billion cash pile.
Further, while many companies have chosen to utilize the current ultra-low interest rates to raise cheap debt and buy back stock, Microsoft’s approach has been prudent and thoughtful.
Current earnings extensively cover buybacks (59% buyback “payout ratio”). In addition, long-term debt has been substantially reduced, from $76 billion in mid-2017 to around $50 billion as of its last report.
It is impressive that a stock with a market capitalization of $2.2 trillion still has such a strong growth momentum. Shares are also trading a P/E ratio of around 34.6, which may be rich. However, due to Microsoft’s robust growth and financials, it’s likely that investors will continue pricing shares at a premium going forward.
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.
The firm’s public holdings have outperformed the market over the past three years, and while it’s still early to judge, the firm seems well-positioned to shine going forward.
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