3 Long Ideas from David Tepper's Top Buys
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Appaloosa Management, L.P. is a Short Hills, N.J.-based hedge fund management firm founded by David A. Tepper. The firm manages over $4 billion in equities and has beaten the S&P 500 consistently by a large margin. I scanned recent big buys of David Tepper for good long opportunities. The following are the three stocks that looks compelling.
Oracle Corp. (NASDAQ: ORCL)
Tepper purchased 1,115,357 shares of Oracle last quarter. Oracle is currently trading at 9.74x FY13 EPS, which is ~40% discount to the large cap software group. Sell side analysts are currently expecting ~9-11% EPS growth rate for the company for the next few years. However, I believe the company can do significantly better.
In the near term, I see two specific product catalysts: Fusion & Exalytics. I expect Fusion adoption to accelerate in the second half of this year after it reaches critical mass of reference customers. Similarly Exalytics, which went for general availability in February, is expected to ramp up in the back half of this year. From a longer-term perspective, I see secular catalysts in the form of Big Data and demand for analytics.
Another thing that makes me positive on Oracle’s growth going forward is its aggressive sales capacity addition. Oracle has increased it sales capacity by more than 30% over the last year. In addition, Oracle has realigned its sales force by hiring more specialized sales people and optimizing its channels. These additional feet on the ground, combined with the company’s other sales initiatives and new product gaining traction, can help spur growth and positively surprise the Street.
In addition to top-line growth, I anticipate the company’s margins to expand. Although the company has already reached its pre-Sun acquisition operating margins (~46%), I feel there is further upside possible as the company sees operating leverage from increasing revenues. Last year on its analyst day, the company said that its intention is to increase operating margins to over 50%. If the company is able to achieve this target a lot of sell-side estimates would prove conservative.
I expect reaccelerating revenues from its new products' traction and increased sales force will act as major catalysts for the stock. In addition, the company’s 80% recurring revenues and $30 billion of cash will provide the downside support for the stock in case the broader macros worsen.
Delta Air Lines (NYSE: DAL)
Tepper purchased 6,740,189 shares of Delta last quarter. I believe Delta is a good buy at current levels. It's trading at ~5.15x 2012 EPS and ~4x FCF. It appears that investors believe that 2012 will be the peak year for airline profitability. However, I don’t agree with them and believe that economic recovery will continue to drive stock price higher. The airline industry is in a good shape given tight supply, a moderating jet fuel futures curve, and still firm booking trends. Delta is trading at a discount to its peers, which is not justified given DAL has much less labor (non-union) and merger risk than peers (UAL/CAL, LCC/AMR). Although Tepper also purchased shares of United Continental and US Airways last quarter, I would recommend sticking to Delta Airlines.
Marvell Technology Group Ltd. (NASDAQ: MRVL)
Tepper purchased 2,630,524 shares of Marvell last quarter. Marvell reported excellent last quarter results and initiated its first quarterly dividend of $0.06 per share to be paid on July 11, 2012. Over the past seven quarters, the company has repurchased a total of 107 million shares, which is ~16% of total shares outstanding. I expect the company to continue posting strong results and keep rewarding the shareholders. In the near term, the ongoing HDD recovery in Thailand should provide a nice tailwind to Marvell for the next several quarters and it's well positioned for this reaccelerating growth. In addition key design wins with its 500GB/platter HDD solution 2.5’’ drives should help the company gain more HDD market share this year.
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