It was widely reported last month that hedge fund manager David Tepper (Trades, Portfolio) shed a sizable portion of his portfolio in the fourth quarter, exiting 15 positions completely and reducing 23. His $20 billion Appaloosa Management also ended the year up 30%.
During the big sell-off, Tepper told CNBC in December that while he did not officially call a top for the markets in 2015, he did foresee rising values on stocks that were already not cheap: "You [just] have to be aware of the possibility for some sort of overvaluation of the markets," he said. "And they are fair value now."
Tepper also likened 2015 to 1999, alluding to potential turbulence ahead due to trouble in Russia and quantitative easing in Europe and the rest of the world when U.S. fundamentals did not show strength.
He used the price-to-earnings ratio, one indicator of the cheapness of a stock, to help make his point about valuation. "Remember in 1999 the S&P [500] went to a 30 P/E [price-to-earnings ratio]. Next year P/E is now like 16," Tepper told CNBC.
The P/E ratio of the S&P had risen to 20.1 on Tuesday, above the historical mean of 15. The Shiller P/E, a more reliable estimate of market valuation that evens out business cycles, stood at 27.4, which is 65.1% higher than the historical mean of 16.6.
Some of Tepper's larger positions that he retained in the fourth quarter have the lowest P/E ratios in his portfolio. The lowest of the low P/E stocks are: Goodyear Tire & Rubber Co. (GT), Terex Corp (TEX), Chicago Bridge & Iron Company (CBI), Masco Corp (MAS) and American Airlines Group Inc. (AAL).
Goodyear Tire & Rubber Co. (GT)
Tepper's sixth largest holding also has the lowest P/E in his portfolio, at 3.1. He owned 10,238,716 shares at quarter-end, having reduced the position 9.2% in the fourth quarter. The holding represented 7.2% of his portfolio.
Goodyear Tire & Rubber Co. is an Ohio corporation organized in 1898. Goodyear Tire & Rubber Co. has a market cap of $7.28 billion; its shares were traded at around $27.00 with a P/E ratio of 3.10 and P/S ratio of 0.40. The dividend yield of Goodyear Tire & Rubber Co. stocks is 0.8%. Goodyear Tire & Rubber Co. had an annual average earnings growth of 20.7% over the past five years.
Terex Corp (TEX)
Terex Corp has a P/E ratio of 9.6. Tepper held 1,651,708 shares of the company, dedicating 1.1% of his portfolio to the position. He increased the position by 5.8% in the fourth quarter.
Terex Corp was incorporated in Delaware in October 1986 as Terex U. Terex Corp has a market cap of $2.81 billion; its shares were traded at around $26.42 with a P/E ratio of 9.6 and P/S ratio of 0.4. The dividend yield of Terex Corp stocks is 0.8%.