BOSTON (TheStreet) -- Long/short hedge-fund manager David Tepper, who runs Appaloosa Management, added 11 new equity positions during the fourth quarter. Tepper's funds doubled in 2009 as he purchased securities of beleaguered financial firms amid the subprime meltdown. Tepper, a deep-value investor, uses a concentrated strategy, taking big positions in a handful of equities, preferred shares and debt obligations that he considers cheap.
During the fourth quarter, Tepper scooped up shares in companies ranging from dairy-sellers to carmakers. Here is a look at Tepper's 11 new stock positions. They may outperform indices in 2011.
, the fourth worst-performing S&P 500 stock over the past 12 months, has weaseled its way into David Tepper's heart.
He purchased 11 million shares in the company. Dean sells milk, cream, half-and-half, soy milk, juice and other beverages. Its fourth-quarter net income tumbled 51% to $24 million and earnings per share plummeted 59% to 11 cents. Dean's gross margin narrowed from 28% to 24% and its operating margin tightened from 5.6% to 3.3%. The stock has fallen 32% in the past year. Of the 15 analysts covering Dean, 14 rate its stock "hold" and one ranks it "sell." None rank it "buy." Tepper is happy to play contrarian. Here is a look at the stock's valuation:
Forward Earnings Multiple: 13 (19% Industry Discount)
Trailing Earnings Multiple: 11 (53% Industry Discount)
Book Value Multiple: 1.2 (71% Industry Discount)
Cash Flow Multiple: 3.3 (83% Industry Discount)
Sales Multiple: 0.2 (90% Industry Discount)
is a holding company, with thrift and mortgage finance subsidiaries operating in Michigan, Indiana and Georgia.
Its stock has dropped 38% in the past six months, to less than $2 a share. Tepper purchased more than three million shares in the company during the fourth quarter, becoming its eleventh largest shareholder. Flagstar's fourth-quarter net loss more than doubled to $187 million, but it narrowed on a per-share basis to 74 cents, due to dilution. Revenue declined 9.3%. Based on projected earnings and sales per share, Flagstar is cheap. Its forward earnings multiple of 11 and sales multiple of 1 reflect 61% and 70% discounts to financial peer averages.
No analysts recommend buying Flagstar, but all 12 of its largest investors amplified their stakes during the fourth quarter. Hedge-fund
is another shareholder.
is a diversified financial-services company and analysts' favorite Dow stock, based on aggregate ratings. Of those covering the stock, 85% advocate purchasing it.
Researchers, on average, expect the dividend to more than triple during 2011.
forecasts that the dividend will quintuple during the second quarter. JPMorgan's fourth-quarter net income stretched 47% to $4.8 billion and earnings per share expanded 51% to $1.12, boosted by a share repurchase, which lessened the float. The bank's gross margin widened from 60% to 78% and its operating margin climbed from 33% to 52%, boosting the bottom line.
Forward Earnings Multiple: 8.5 (29% Industry Discount)
Trailing Earnings Multiple: 12 (24% Industry Discount)
Sales Multiple: 1.6 (16% Industry Discount)
12-Month Stock Performance: 21%
Median Price Target: $54.96
Implied Upside: 17%
makes cars and trucks under the Chevrolet, GMC, Buick and Cadillac names. It emerged from bankruptcy reorganization in July of 2009 and went public in November of 2010 at an initial share price of $33. Its stock has advanced 5.3% since.
GM's third-quarter marked its third of profitability since the recession. It generated $34 billion of revenue, $2 billion of net income and $1.20 of diluted earnings per share. GM's January sales advanced 23% year-over-year. Tepper purchased 1.4 million GM shares in the fourth quarter. The stock is an analyst favorite, with a $44.07 median target, suggesting 22% upside.
Sell-Side Ratings and Targets:Barclays, Overweight, $48
Citigroup, Buy, $47
Credit Suisse, Outperform, $46
Deutsche Bank, Buy, $45
Goldman Sachs, Buy, $45
JPMorgan, Overweight, $44
UBS, Neutral, $37
owns a supermarket chain in the U.S. It swung to a fiscal third-quarter profit of $202 million, or 32 cents a share, from a loss of $875 million, or $1.35, a year earlier. Revenue ascended 5.9%. The gross margin declined from 23% to 22%. The operating margin rose from 2% to 2.2%.
Tepper purchased 135 thousand shares during the fourth quarter, a modest position. Of analysts covering Kroger, 12, or 57%, rate its stock "buy", six rate it "hold" and three rank it "sell." A median target of $23.81 suggests modest upside. However, Kroger's stock is exceptionally cheap relative to the food and staples retailing peer group. Here is a closer look:
Forward Earnings Multiple: 12 (25% Industry Discount)
Trailing Earnings Multiple: 13 (19% Industry Discount)
Cash Flow Multiple: 3.3 (51% Industry Discount)
Sales Multiple: 0.2 (62% Industry Discount)
makes cranes and food-service equipment.
Its fourth-quarter net loss more than doubled to $64 million, or 41 cents a share, although the operating margin expanded from 4.4% to 6.4%. Revenue declined less than one percent to $831 million. Manitowoc has a market value of $2.6 billion. Its stock has soared 71% in the past year. Manitowoc has $96 million of cash and $2 billion of debt, a precarious financial position. But, debt has fallen 8% from the year-earlier tally. Tepper added 1.2 million shares of Manitowoc to his portfolio during the quarter, becoming the sixteenth-largest owner.
Forward Earnings Multiple: 14 (26% Industry Discount)
Cash Flow Multiple: 12 (23% Industry Discount)
Sales Multiple: 0.8 (50% Industry Discount)
designs semiconductors for data storage and retrieval.
Its stock has rallied 38% in the past 12 months, tumbling 40% between April and September and then soaring 78%. It still ranks as one of the cheapest S&P 500 stocks based on valuation metrics, costing just 10-times 2011 earnings. Tepper bought 18 million common shares during the fourth quarter, becoming Micron's twelfth-largest investor. Around 84% of analysts in coverage advise clients to buy Micron.
ranks the stock a "strong buy" and expects it to advance 54% to $18. The stock has a median target of $13.98, implying 20% upside.
Forward Earnings Multiple: 10 (41% Industry Discount)
Trailing Earnings Multiple: 6.5 (72% Industry Discount)
Book Value Multiple: 1.4 (65% Industry Discount)
Cash Flow Multiple: 3.4 (83% Industry Discount)
Sales Multiple: 1.3 (67% Industry Discount)
Morgans Hotel Group
is a hospitality company that develops, owns and operates boutique hotels. Its stock has more than doubled during the past 12 months.
Morgan's fourth-quarter loss widened 33% to $37 million and increased 41% on a per-share basis to $1.30, though revenue inched up 2.3%. The gross margin stretched from 45% to 46% and the operating margin came closer to positive territory, moving from negative 3.4% to negative 2.1%. Cash rose 32% to $69 million and debt fell 6% to $702 million. Tepper has purchased 91 thousand shares. Five analysts rate Morgans "buy." Two rate it "hold."
Mueller Water Products
is an industrial company, manufacturing water infrastructure, flow control and piping component products. Its stock has dropped 20% in the past 12 months.
Mueller's fourth-quarter loss expanded 13% to $12 million, or eight cents a share, from the year-earlier deficit. Sales declined 8.2% to $288 million. The operating margin fell further into negative territory, hitting negative 0.8%. Cash decreased 42% year-over-year to $72 million, but debt fell 6% to $693 million. Tepper added 2.5 million shares to his portfolio during the quarter. Mueller receives positive reviews from 25% of analysts in coverage.
is a food and drug retailer.
Its fiscal third-quarter net income decreased 4.7% to $123 million, but earnings per share increased 6.5% to 33 cents, boosted by a notably lower share count. Revenue declined marginally to $9.4 billion. Safeway's gross margin remained steady at 31%, but its operating margin slipped from 3% to 2.6%. Safeway held $633 million of cash at quarter's end, a 67% increase from the year-earlier balance. Debt declined to $5.3 billion. Tepper bought 133 thousand Safeway shares during the quarter, a modest position. Of analysts covering Safeway, only seven, or 32%, rate it "buy."
Forward Earnings Multiple: 13 (19% Industry Discount)
Book Value Multiple: 1.7 (41% Industry Discount)
Cash Flow Multiple: 3.8 (59% Industry Discount)
Sales Multiple: 0.2 (57% Industry Discount)
owns the Acme, Albertson's and Shaw's supermarket chains, among others.
SuperValu's stock has plummeted 45% in the past 12 months, ranking as the worst-performing S&P 500 stock. But, it trades at outsized discounts to peers, as a result. SuperValu swung to a fiscal third-quarter loss of $202 million, or 95 cents a share, from a profit of $109 million, or 51 cents, a year earlier. Revenue fell 5.9%. The operating margin contracted from 3.3% to 1.6%. Tepper purchased 308 thousand shares during the fourth quarter. No analysts rate SuperValu's stock "buy." Twelve rank it "hold" and three rate it "sell."
Forward Earnings Multiple: 7.0 (55% Industry Discount)
Book Value Multiple: 1.4 (52% Industry Discount)
Cash Flow Multiple: 1.3 (86% Industry Discount)
Sales Multiple: 0.1 (89% Industry Discount)
-- Written by Jake Lynch in Boston.
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