Billionaire David Tepper is an enormously successful hedge fund manager. For a very long time his long/short equity hedge fund delivered annualized returns of 30% or more after fees. There are only a few hedge fund managers who were able to accomplish this and most of them are billionaires today.
We analyzed the performance of David Tepper’s historical stock picks for the 1999-2017 period. Our analysis showed that David Tepper’s top 5 stock picks returned an average of 1.65% per month vs. 0.57% per month for the S&P 500 Index between 1999 and 2017. Tepper managed to beat the market by more than 12 percentage points annually during this 18 year period. This outperformance figure shrunk to about 4 percentage points per year between 2008 and 2017. This is still a very respectable figure. Tens of millions of investors rely on index funds. Investors who have been imitating Tepper’s top stock picks outperformed the crowd by more than 50 percentage points during the 2008-2017 period.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a glance at David Tepper’s top 6 stock picks:
The biggest position in David Tepper’s 13F portfolio is Alibaba Group Holding Limited (NYSE:BABA). Tepper allocated 12.6% of his 13F portfolio to BABA shares after boosting his stake by 49% during the second quarter. Alibaba is an extremely popular smart money stock, ranking #5 in our list of the 30 most popular stocks among hedge funds. Alibaba shares returned more than 26% since the end of the second quarter. As you can see Tepper’s magic is still working.
The second biggest position in Tepper’s 13F portfolio is Amazon.com Inc. (NASDAQ:AMZN). Amazon is the number one stock among hedge funds and a solid performer during the third quarter. Tepper’s $621 million position in AMZN at the end of June generated a total return of 18.8% so far during the third quarter (despite the large losses over the last few trading days).
Tepper’s biggest purchase during the second quarter was T-Mobile US, Inc. (NASDAQ:TMUS). Tepper boosted his stake in TMUS by 666% bringing it to over $600 million. TMUS shares returned 9.8% since the end of the second quarter.
The fourth largest position in Appaloosa’s 13F portfolio was another media giant, Facebook Inc (NASDAQ:FB). David Tepper had more than $500 million invested in FB shares, though he cut his position prematurely by 7% as the stock returned 20.8% since the end of the second quarter. We believe Facebook is on its way to become a trillion dollar market cap stock as around 2 billion people provide free content, personal data, and consume ads on the platform.
The fifth and sixth positions in Tepper’s portfolio are very close in position size. Tepper had $482 million invested in Micron (MU) and $472 million invested in Alphabet Inc. (GOOG). During the second quarter Tepper cut his Alphabet Inc stake by 7% and increased his MU stake by 6%. That’s why GOOG ranked one spot below MU in Tepper’s portfolio. The seventh largest position in Tepper’s portfolio was $200 million smaller than Tepper’s GOOG stake (see Tepper’s entire portfolio here). Micron is one of Tepper’s old favorite stock picks. Tepper made a ton of money from his Micron bets when the stock was trading below $9. Unfortunately for Tepper Micron underperformed GOOG by more than 22 percentage points since the end of June.
Overall, Tepper’s top stock picks look promising. They outperformed the S&P 500 Index by 3.3 percentage points since the end of Q2.
Disclosure: None. This article is originally published at Insider Monkey.