We recently compiled a list of the Billionaire David Tepper's 10 Long-Term Stock Picks. In this article, we are going to take a look at where Energy Transfer LP (NYSE:ET) stands against the other long-term stock picks of Billionaire David Tepper.
David Tepper’s Appaloosa Management is a multi-billion dollar hedge fund that was co-founded by billionaire Carolina Panthers owner Tepper in 1993. The fund was initially launched with a focus on distressed debt, which Tepper had years of experience in following a seven-year run as a credit analyst and head trader at Goldman Sachs.
Appaloosa quickly built a name for itself on the backs of those distressed equities and Tepper’s aggressive investment style, returning 57% within its first six months of operation and has delivered impressive compound returns of greater than 25% since inception. It was managing $800 million in assets within five years of launching, which has since grown to $16.8 billion as of late 2023.
That figure would be much greater if not for the fact that Tepper began transitioning his fund into a family office in 2019, beginning the process of returning money to outside investors. By 2022, nearly 90% of Appaloosa’s assets were owned by either Tepper, his family, or Appaloosa employees.
Appaloosa’s 13F portfolio contained just 38 long positions heading into the final quarter of 2024, and was valued at $6.73 billion, up from $6.18 billion at the end of June. The fund added four new positions to its portfolio during Q3, while unloading three former holdings.
Tech stocks held a dominant position in the fund’s portfolio for the third straight quarter, accounting for 38.5% of its value. The fund also had significant exposure to both communications and consumer discretionary stocks, at 24.6% and 23.1% respectively.
Appaloosa’s exposure to various sectors was markedly different just five quarters earlier, when tech stocks accounted for just 7.1% of its 13F portfolio, while energy and utilities stocks came in at 15% and 21.7% respectively. The fund also had much greater exposure to healthcare stocks at that time, which accounted for 9.2% of its portfolio value, compared to just 2.4% at the end of September 2024.
Of particular note is not just the sector allocations of Tepper’s fund, but also where those stocks originate from. Appaloosa’s top two stock picks are both Chinese stocks, as are 4 of its top 12 equity holdings. The fund has also built a stake in a major Chinese large-cap ETF. The bulk of those China-based additions to Appaloosa’s portfolio have come within the past five quarters, just ahead of major stimulus initiatives and economic policy shifts by the Chinese government that have helped spur in a rebound in the world’s second-largest economy.
In a September interview on CNBC’s Squawk Box, Tepper noted that despite some recent gains in Chinese stocks, they are still trading significantly below past valuations and at just single-digit earnings multiples despite double-digit growth rates. He contrasted that to the S&P trading at a 20+x multiple to highlight the ongoing attractiveness of Chinese stocks. Tepper added that the Chinese government has exceeded expectations when it comes to its stimulus plans, which should bode very well for the Chinese economy in the months and years to come.
Given Appaloosa’s highly concentrated portfolio and the relatively short timeframes with which it overhauls its holdings, there is notable value in focusing on those stocks that the fund has held on to for several years.
David Tepper Appaloosa Management
Our Methodology
The following data is gathered from Appaloosa Management’s latest 13F filing with the SEC.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). That’s why you should pay close attention to this important indicator.
Note: All hedge fund data is based on the exclusive group of 900+ active funds tracked by Insider Monkey that filed 13Fs for the Q3 2024 reporting period.
Value of Appaloosa Management’s 13F Position (9/30/2024): $110 million
Number of Hedge Fund Shareholders (9/30/2024): 29
Energy Transfer LP (NYSE:ET) is Appaloosa’s top long-term energy stock to make the list, having a place in the fund’s 13F portfolio since the second quarter of 2017. Appaloosa cut its stake in the company by 12% during the latest quarter, to 6.83 million shares. Energy Transfer has lost hedge fund support in five of the past seven quarters, with an overall dip in smart money ownership of 26% during that time.
Energy Transfer LP (NYSE:ET) shares are near 52-week highs, which hasn’t frightened David Tepper away from the midstream giant. Part of that ongoing conviction could be due to the stock’s attractive dividend yield of 6.7%, with the company having paid out dividends for 18 straight years.
ET shares are slightly more expensive than peers at 14.3x earnings, but analysts expect the company’s earnings growth to be solid, with projections for between $1.39 and $1.56 in earnings next year and between $1.52 and $1.69 in earnings in 2026. Energy Transfer is a top 25 U.S. stock pick for 2025 by UBS, one of just three energy stocks to make the list.
Samantha McLemore’s Patient Capital Management continues to like the long-term outlook for Energy Transfer LP (NYSE:ET), as the fund revealed in its Q3 2024 investor letter:
“Energy names disappointed in the quarter following commodity prices lower throughout the period. We took the opportunity to add to our highest conviction ideas. We look to names that have idiosyncratic opportunities and are attractive in a variety of different commodity price environments. Many see risk to energy prices over the next year as supply is expected to outstrip demand by 1.3mb/d even before assuming any incremental OPEC supply comes onto the market. With commodities, consensus is rarely right. We assess companies on through cycle returns and normalized prices. From this perspective, we see a handful of attractive opportunities, including Energy Transfer LP (NYSE:ET), Seadrill (SDRL) and Kosmos (KOS).
Overall, ET ranks 5th among Billionaire David Tepper's 10 Long-Term Stock Picks. While we acknowledge the potential of ET, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ET but that trades at less than 5 times its earnings, check out our report about thecheapest AI stock.
