Appaloosa's 13F filing revealed that the value of the firm's portfolio increased by nearly 50% in the fourth quarter. I searched through the investment manager's current holdings to find the stocks with the best chance to trade 50% higher this quarter.
Appaloosa's Largest Holdings
On February 14th, David Tepper's firm Appaloosa filed its quarterly Form 13F regulatory filing. I reviewed the filing to gain a glimpse into the firm's large portfolio.
Appaloosa's stock portfolio totals $10.5 billion according to the latest document. The list value of stock holdings is up a significant 47.5% when compared to the last quarter. As a benchmark, the S&P 500 was up only 6.1% over the same period.
The Ideas section of finbox.io tracks top investors and trending investment themes. You can get the latest data on the holdings discussed below at the Appaloosa page. The following table summarizes the firm's largest holdings reported in the last filing:
|Ticker||Name||Holding ($mil)||% Of Portfolio|
|MU||MICRON TECHNOLOGY INC||$1,130.8||10.8%|
|QQQ||POWERSHARES QQQ TRUST||$903.4||8.6%|
|BABA||ALIBABA GROUP HLDG LTD||$744.9||7.1%|
The seven positions above represent 54.4% of the fund's total portfolio.
Appaloosa's 7 Most Undervalued Holdings
To determine which stocks are trading below their intrinsic value, aka "fair value" I used the finbox.io Fair Value estimates. I also wanted to blend in some indication of which stocks might be ready to make a move up soon because they're popular with Wall Street analysts.
I calculated an average using the finbox.io fair value upside and analyst upside to create a blended upside which I then used to rank the most undervalued holdings.
Here are the top 7 stocks based on my calculations:
|Ticker||Name||Upside (finbox.io)||Upside (Analyst Target)||Blend Upside|
|ETE||ENERGY TRANSFER EQUITY L P||44.7%||20.4%||32.6%|
|WDC||WESTERN DIGITAL CORP||30.1%||34.4%||32.2%|
|MU||MICRON TECHNOLOGY INC||27.1%||36.5%||31.8%|
|HCA||HCA HEALTHCARE INC||49.5%||10.8%||30.1%|
|CNC||CENTENE CORP DEL||35.0%||24.8%||29.9%|
|LUV||SOUTHWEST AIRLS CO||29.0%||27.3%||28.2%|
Energy Transfer Equity
Energy Transfer Equity (NYSE: ETE) provides diversified energy-related services in the United States.
Shares of the company are up 6.0% over the last three months. The stock last traded at $17.15 as of Thursday February 15th and 2 separate valuation analyses imply that there is 44.7% upside relative to its current trading price.
Western Digital (Nasdaq: WDC) develops, manufactures, and sells data storage devices and solutions worldwide.
Shares of Western Digital are down -7.8% over the last three months and finbox.io's fair value estimate of $109.99 per share calculated from six cash flow models imply 30.1% upside. The average price target from 26 Wall Street analysts of $113.58 per share implies even more upside.
Micron Technology (Nasdaq: MU) provides semiconductor systems worldwide.
Micron Technology's stock currently trades at $43.50 per share as of Thursday February 15th, down -4.2% over the last three months. Finbox.io's six valuation analyses suggest that shares could increase 27.1% going forward.
HCA Holdings (NYSE: HCA) provides health care services in the United States and England.
Shares of the company are trading 33.3% higher over the prior three months. However, the stock price could end up trading another 49.5% higher in 2018 based on HCA Holdings' future cash flow projections.
Centene Corporation (NYSE: CNC) operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States.
Centene Corporation's stock currently trades at $99.75 per share as of Thursday February 15th, up 10.8% over the last three months. On a fundamental basis, the company's stock is trading at a 35.0% discount to finbox.io's intrinsic value estimate.
Southwest Airlines (NYSE: LUV) operates a passenger airline that provides scheduled air transportation services in the United States and near-international markets.
Shares of the company are up 5.7% over the last three months. The stock last traded at $58.20 as of Thursday and eleven separate valuation analyses imply that there is 29.0% upside relative to its current trading price.
PG&E Corporation (NYSE: PCG), through its subsidiary, Pacific Gas and Electric Company, engages in the sale and delivery of electricity and natural gas to residential, commercial, industrial, and agricultural customers in northern and central California.
Shares of PG&E Corporation are down -29.8% over the last three months and finbox.io's fair value estimate of $49.15 per share calculated from four cash flow models imply 23.0% upside. The average price target from 14 Wall Street analysts of $49.71 per share implies similar upside.
Appaloosa’s David Tepper and His Crystal Ball
Hedge fund managers may seem to be a dime a dozen, but not many of them have had a stock market rally named after them. Billionaire David Alan Tepper, founder and portfolio manager at Appaloosa Management L.P., is the exception, having inspired what’s been dubbed the Tepper Rally of 2010.
Through his macro view of the financial markets, Tepper was able to predict not only the stock market rally but the catalysts behind it which ultimately proved to be the Fed’s stimulus.
Then in February 2009, his fund bought distressed financial stocks such as Bank of America (NYSE: BAC) when they were at their bottom. The sector quickly recovered later in the year and Tepper reportedly made $7 billion. This ultimately helped him become the top-earning hedge fund in 2009.
With such an impressive track record, it is worth it for individual investors to take a closer look at his portfolio and the stocks listed above.
Author: Matt Hogan
Expertise: Valuation, financial statement analysis
Matt Hogan is a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock.
His work is frequently published at InvestorPlace, Benzinga, ValueWalk, AAII, Barron's, Seeking Alpha and investing.com.
Matt can be reached at [email protected].
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.