David Tepper’s Favorite Energy – GuruFocus.com

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David Tipper (Trades, Portfolio) Appaloosa Management, the Florida-based hedge fund founded in 1993, has earned an international reputation for delivering strong returns among Wall Street investors.

Known as a specialist in distressed debt, filings show the billionaire guru’s firm focuses on investing in distressed debt and equity, swaps, options, term notes and junk bonds. In 2019, Tepper converted his hedge fund into a family office after becoming the owner of the Carolina Panthers NFL football team.

At the end of the second quarter, the energy sector ranked third in Tepper’s $1.59 billion equity portfolio with a weighting of 22.65%.

According to its 13F filing for the three months ended June 30, Tepper’s five largest energy holdings, excluding warrants, are Energy Transfer LP (HEY, Financial), EQT Corp. (EQT, Financial), Occidental Petroleum Corp. (OXY, Financial), Antero Resources Corp. (AR, Financial) and Enterprise Products Partners LP (DEP, Financial).

Investors should be aware that 13F filings do not provide a complete picture of a company’s holdings as the reports only include its positions in US stocks and US certificates of deposit, but they can still provide valuable insight. Additionally, reports only reflect trades and holdings as of the most recent portfolio deposit date, which may or may not be held by the reporting company today or even when this article was published.

Energy transfer

The guru stimulated his energy transfer (HEY, financial) by 11.50% during the second quarter, bringing the total stake to 10.27 million shares. The position represents 6.43% of the equity portfolio and is now the sixth largest position. GuruFocus estimates that Tepper lost 4.05% on the long-time investment.

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The Dallas-based midstream energy company has a market capitalization of $36.25 billion; its shares were trading around $11.85 on Tuesday with a price-to-earnings ratio of 9.39, a price-to-book ratio of 1.12 and a price-to-sales ratio of 0.43.

The GF value line suggests that the stock is currently valued at fair value based on historical ratios, past financial performance and analysts’ future earnings projections.

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GuruFocus rated Energy Transfer’s financial strength at 4 out of 10. Besides low interest coverage, the low Altman Z-Score of 1.33 warns that the company could be at risk of bankruptcy in the short term. The weighted average cost of capital also overshadows the return on investment, so it struggles to create value as it grows.

The company’s profitability fared better, scoring 7 out of 10 due to operating margin expansion, returns on equity, assets and capital that exceed half of its competitors and a high Piotroski F-Score of 7 out of 9, indicating conditions are healthy. Given that earnings per share have declined in recent years, Energy Transfer’s predictability rating of one out of five stars is under scrutiny. According to GuruFocus, companies in this ranking return an average of 1.1% per year over a 10-year period.

Among the gurus invested in energy transfer,

david abrams (Trades, Portfolio) holds the largest stake with 0.72% of its shares outstanding.

Leon Cooperman (Businesses, Portfolio) and

Francisco Garcia Parames (Trades, Portfolio) also have large positions in the stock.

EQT

The investor has reduced his EQT (EQT, Financial) 27.57% stake in the quarter to 2.85 million shares. The stake represents 6.15% of the equity portfolio and is Tepper’s seventh largest position. Data from GuruFocus shows that it has gained around 82.89% on investment since its inception in Q4 2020.

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The natural gas producer, headquartered in Pittsburgh, has a market capitalization of $17.12 billion; its shares were trading around $46.86 on Tuesday with a price-to-pound ratio of 1.89 and a price-to-sales ratio of 1.68.

According to the GF Value chart, the stock is currently significantly overvalued.

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EQT’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued new long-term debt in recent years, it is manageable with adequate interest coverage. Altman’s low Z-Score of 0.89, however, warns it could be at risk of bankruptcy. The ROIC also eclipses the WACC, so value creation occurs.

The company’s profitability was rated 6 out of 10, thanks to strong margins and returns that outperform the majority of industry peers. EQT also has a moderate Piotroski F-Score of 6, indicating conditions are stable despite recording operating revenue losses, and a one-star predictability rating.

With a 2.03% stake,

Daniel Loeb (Trades, Portfolio) is EQT’s largest shareholder guru. Other guru investors in notable positions include

Steve Mandel (Businesses, Portfolio) and

Jim Simons (Businesses, Portfolio)’ Renaissance Technologies.

western oil

In the third quarter, Tepper cut its Occidental Petroleum (OXY, Financial) holding 69.19% to 875,000 shares. The position represents 3.23% of the equity portfolio. According to GuruFocus, he has gained around 189.04% on the investment so far.

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The Houston-based oil and gas producer has a market capitalization of $58.07 billion; its shares were trading around $63.67 on Tuesday with a price-to-earnings ratio of 5.96, a price-to-book ratio of 3.21 and a price-to-sales ratio of 1.80.

Based on the GF value line, the stock appears to be slightly overvalued currently.

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GuruFocus rated Occidental’s financial strength at 5 out of 10. Despite ample interest coverage, the Altman Z-Score of 2.02 suggests he is under some pressure as assets accumulate at a faster than income is growing. However, value is created since the ROIC exceeds the WACC.

The company’s profitability fared better with a score of 7 out of 10, driven by strong margins and higher returns than the majority of its competitors. Occidental also has a high Piotroski F-Score of 7 and a one-star predictability rating.

Buffett is the company’s largest shareholder guru with a 29.22% stake. Dodge & Cox, the

Smead Value Fund (Businesses, Portfolio) and

John Paulson (Trades, Portfolio) also have large investments in Occidental.

Antero Resources

The guru lightened his resources Antero (AR, Financial) by 27.85% in the second quarter. Now holding 1.43 million shares, the position has a weighting of 2.74% in the equity portfolio. GuruFocus indicates that Tepper has gained around 105.84% on the investment since the first quarter of 2021.

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The oil and natural gas producer, headquartered in Denver, has a market capitalization of $10.99 billion; its shares were trading around $36.80 on Tuesday with a price-to-earnings ratio of 13.36, a price-to-book ratio of 1.84 and a price-to-sales ratio of 1.52.

The GF value line suggests that the stock is currently significantly overvalued.

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Antero’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. Despite a comfortable level of interest coverage, the Altman Z-Score of 1.690 warns that the company could be in danger of bankruptcy. Value is also created since the ROIC exceeds the WACC.

The company is backed by higher margins and returns than the majority of its industry peers. Antero also has a high Piotroski F-Score of 8 as well as a one-star predictability rating.

Among the gurus invested in Antero Resources, Simons’ company has the largest stake with 1.17% of its shares outstanding. Loeb,

steven cohen (Businesses, Portfolio),

Ken Heebner (Businesses, Portfolio) and

Stanley Druckenmiller (Trades, Portfolio) also have significant holdings.

Enterprise Product Partners

The guru has reduced his Enterprise Products Partners (DEP, Financial) holding 4.89% to 777,980 shares. It represents 1.19% of the equity portfolio. Tepper has earned around 29.94% on the investment over its lifetime.

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The Houston-based midstream oil and gas company has a market capitalization of $55.72 billion; its shares were trading around $25.78 on Tuesday with a price-to-earnings ratio of 11.51, a price-to-book ratio of 2.16 and a price-to-sales ratio of 1.09.

According to the GF Value Line, the stock is currently slightly undervalued.

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GuruFocus rated Enterprise Products Partners’ financial strength at 4 out of 10, due to insufficient interest coverage and a low Altman Z-Score of 1.77 which warns the company could be at risk of bankruptcy if it does not improve its liquidity. However, the company creates value since the ROIC is higher than the WACC.

The company’s profitability fared better with an 8 out of 10 rating. In addition to an expanding operating margin, Enterprise Products Partners has strong returns that outperform more than half of its competitors. It also has a high Piotroski F-Score of 7 and a one-star predictability rating.

Bruce Berkowitz (Trades, Portfolio) is the company’s largest guru shareholder with a 0.16% stake.

First Eagle investment (Businesses, Portfolio), the

Fairholme Fund (Businesses, Portfolio) and the

Fairholme Focused Income Fund (Businesses, Portfolio) also have significant positions in Enterprise Products Partners.

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