David Tepper bets 40% of his portfolio on these 4 stocks

Rummaging through the portfolios of billionaire investors can be a useful strategy for finding investment ideas. With a universe of thousands of stocks to choose from, narrowing down the list to a more manageable number by seeing where the so-called smart money is putting their cash can help you direct your own investments.

David Tepper’s portfolio Appaloosa Management is an excellent place to start. Founded in 1993, the hedge fund operator enjoyed annual returns of around 25%. That’s a rarity on Wall Street.

However, unlike many money managers, Tepper has no particular style. He is not strictly a value investor, a growth investor, or someone who follows the momentum crowd. His style is much more eclectic.

In addition to just buying stocks, Tepper also buys distressed debt, buys high-yield bonds, bank loans to leveraged companies, and more. These are strategies that are typically not available to the average investor and are also not highly visible because they are not reported in the fund’s 13F filings with the Securities & Exchange Commission.

So while a lot of Tepper’s profits come from these esoteric investments, his stock positions are still instructive. He owns about three dozen companies, but the top four positions below represent 40% of the total.

Key points about this article:

• David Tepper has proven to be a skilled but rare money manager who has generated annual returns of 25% since Appaloosa Management was founded 31 years ago.
• The hedge fund operator doesn’t fit neatly into a value or growth category, but is opportunistic in its investments, including the four largest positions in its portfolio.
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Alibaba (BABA)

Alibaba sign in front of corporate headquarters

Leading Chinese e-commerce platform Alibaba (NYSE:BABA) has diversified its operations over the years and now has its fingers in many pies, including cloud computing and digital media. In the past few years, Alibaba has become the focus of intense regulatory scrutiny as Beijing grew suspicious of founder Jack Ma’s growing economic power.

After Ma criticizes regulators for stifling innovation, the e-commerce giant has come under investigation accusing it of using monopolistic practices. Alibaba’s shares suffered afterward. Over the past three years, BABA shares have lost nearly half their value.

That cloud has been lifted recently. Beijing recently announced that Alibaba has has ceased its monopolistic ways and coincides with calls for greater government economic support for private enterprise. BABA shares have risen 3% since the announcement.

Alibaba is Tepper’s largest holding, accounting for 12.2% of Appaloosa’s portfolio. He owns 10.5 million shares valued at $756 million. Although he reduced his position slightly in the second quarter, the number of shares held is two and a half times what it was at the end of 2023.

Amazon (AMZN)

Yellow truck pulls in from Amazon fulfillment center

It’s clear Tepper likes the e-commerce space and the sprawling operations the industry giants have developed, as his second-largest position is Amazon (NASDAQ:AMZN). However, the US e-commerce leader has paved the way for others to follow as Amazon Web Services is the premier cloud services business and has become the backbone of online business presence.

AWS has long been Amazon’s profit center and continues in that role. It also serves as the online retailer’s growth engine, with segment revenue up 19% year-over-year to $26.3 billion. The AWSs operating profit increased by 72% compared to last year, reaching $9.3 billion or 64% of the total.

Amazon makes up 10.9 percent of Appaloosa’s portfolio, meaning Tepper has nearly a quarter of his fund’s $6.2 billion in assets under management in the world’s two largest e-commerce and cloud services operations. He owns 3.5 million shares of AMZN worth $671.5 million. While that’s down slightly from its recent peak of nearly 4 million shares in the third quarter of last year, it remains a sizable holding.

Microsoft (MSFT)

Microsoft logs into the building

The technology giant Microsoft (NASDAQ:MSFT) is Tepper’s third largest holding. It shows his affinity for AI stocks, which is likely partly why he owns such large stakes in Alibaba and Amazon. Microsoft quickly became an AI, adopting the technology early on and integrating it into its products and suite of services. In particular, its Azure cloud platform, Office 365 and Dynamics 365 will continue to benefit from AI adoption.

Azure, for example, saw a 30% increase in revenue in the second quarter, six percentage points of which were directly connected with the contribution of AI.

Tepper owns nearly 1.2 million shares of MSFT valued at $528 million, or 8.6% of Appaloosa’s total. It’s another stock he made gains on, reducing his holdings from 1.7 million shares in the fourth quarter of 2023. Since the start of 2023, however, Microsoft shares have gained 80%.

Meta Platforms (META)

Meta Platforms corporate logo behind a phone with the Facebook logo on it

Technology is also a favorite topic for Tepper as Meta platforms (NASDAQ:META) is the fourth largest position. He owns 935,000 shares valued at $471.5 million, representing a 7.6% position in the portfolio.

Here, however, Tepper cut his stake by more than half, owning 2 million shares just a year ago. Smart move or sell too early? Since the end of the second quarter of last year, META shares are up 86%, suggesting that Tepper left a lot of money on the table by dumping his shares.

As the social media platform’s value nearly tripled from the end of 2022 until the hedge fund operator started selling, it appears to have bought all the way through and perhaps felt it had gone too far, too fast. However with o massive and growing user base on its platforms and the ability to use them to rapidly grow digital advertising on them, Meta Platforms seems to have a lot more growth in the cards.

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