We recently compiled a list of the Billionaire David Tepper’s 10 Long-Term Stock Picks. In this article, we are going to take a look at where UnitedHealth Group Incorporated (NYSE:UNH) stands against the other long-term stock picks of Billionaire David Tepper.
David Tepper’s Appaloosa Management is a multi-billion dollar hedge fund that was co-founded by billionaire Carolina Panthers owner Tepper in 1993. The fund was initially launched with a focus on distressed debt, which Tepper had years of experience in following a seven-year run as a credit analyst and head trader at Goldman Sachs.
Appaloosa quickly built a name for itself on the backs of those distressed equities and Tepper’s aggressive investment style, returning 57% within its first six months of operation and has delivered impressive compound returns of greater than 25% since inception. It was managing $800 million in assets within five years of launching, which has since grown to $16.8 billion as of late 2023.
That figure would be much greater if not for the fact that Tepper began transitioning his fund into a family office in 2019, beginning the process of returning money to outside investors. By 2022, nearly 90% of Appaloosa’s assets were owned by either Tepper, his family, or Appaloosa employees.
Appaloosa’s 13F portfolio contained just 38 long positions heading into the final quarter of 2024, and was valued at $6.73 billion, up from $6.18 billion at the end of June. The fund added four new positions to its portfolio during Q3, while unloading three former holdings.
Tech stocks held a dominant position in the fund’s portfolio for the third straight quarter, accounting for 38.5% of its value. The fund also had significant exposure to both communications and consumer discretionary stocks, at 24.6% and 23.1% respectively.
Appaloosa’s exposure to various sectors was markedly different just five quarters earlier, when tech stocks accounted for just 7.1% of its 13F portfolio, while energy and utilities stocks came in at 15% and 21.7% respectively. The fund also had much greater exposure to healthcare stocks at that time, which accounted for 9.2% of its portfolio value, compared to just 2.4% at the end of September 2024.
Of particular note is not just the sector allocations of Tepper’s fund, but also where those stocks originate from. Appaloosa’s top two stock picks are both Chinese stocks, as are 4 of its top 12 equity holdings. The fund has also built a stake in a major Chinese large-cap ETF. The bulk of those China-based additions to Appaloosa’s portfolio have come within the past five quarters, just ahead of major stimulus initiatives and economic policy shifts by the Chinese government that have helped spur in a rebound in the world’s second-largest economy.
In a September interview on CNBC’s Squawk Box, Tepper noted that despite some recent gains in Chinese stocks, they are still trading significantly below past valuations and at just single-digit earnings multiples despite double-digit growth rates. He contrasted that to the S&P trading at a 20+x multiple to highlight the ongoing attractiveness of Chinese stocks. Tepper added that the Chinese government has exceeded expectations when it comes to its stimulus plans, which should bode very well for the Chinese economy in the months and years to come.
Given Appaloosa’s highly concentrated portfolio and the relatively short timeframes with which it overhauls its holdings, there is notable value in focusing on those stocks that the fund has held on to for several years.
Our Methodology
The following data is gathered from Appaloosa Management’s latest 13F filing with the SEC.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). That’s why you should pay close attention to this important indicator.
Note: All hedge fund data is based on the exclusive group of 900+ active funds tracked by Insider Monkey that filed 13Fs for the Q3 2024 reporting period.
UnitedHealth Group Incorporated (NYSE:UNH)
Value of Appaloosa Management’s 13F Position (9/30/2024): $102 million
Number of Hedge Fund Shareholders (9/30/2024): 115
Appaloosa has been a shareholder of the world’s largest healthcare company, UnitedHealth Group Incorporated (NYSE:UNH) since Q1 of 2017. The fund ended Q3 of this year with 174,500 UNH shares, down 6% from a quarter earlier. More than 100 funds have been long UNH during each of the past nine quarters, though one of its newest shareholders now has the largest position, as Rajiv Jain’s GQG Partners added a 3.72 million share stake in UNH to its 13F portfolio during Q3.
UnitedHealth Group Incorporated (NYSE:UNH) shares have been under pressure in recent weeks following the killing of CEO Brian Thompson on December 4. The public response to the murder has been borderline schadenfreude and sparked an ongoing debate about the outsized power and perceived heartlessness of insurers like UnitedHealth Group.
That debate reached the floor of the Senate a week later, with reports emerging that a bipartisan bill was in the works that would force health insurers to sell off their pharmacy benefit managers, who work as middlemen that manage insurers’ prescription drug programs. An interim report released by the FTC in July found that PBMs may be responsible for driving up costs and limiting the choice of prescriptions made available to Americans, which could warrant regulatory measures the report concluded.
UnitedHealth Group owns one of the largest pharmacy benefit managers in the country, OptumRX, which managed $222 billion in pharmaceutical spending in 2023 and grew revenue by 16.4% year-over-year to $116 billion, which accounted for 31% of UnitedHealth’s 2023 revenue.
Parnassus Value Equity Fund shared some of the secular tailwinds it sees bolstering UnitedHealth Group Incorporated (NYSE:UNH)’s outlook in the fund’s Q3 2024 investor letter:
“We purchased two new stocks, UnitedHealth Group Incorporated (NYSE:UNH) and Amazon. These are high-quality businesses facing temporary issues, which allowed us to purchase them at discounted valuations. The addition of UnitedHealth increases our small overweight to the Health Care sector. UnitedHealth benefits from secular tailwinds of an aging population, health care cost inflation and increasingly relevant use of heath care data/analytics. It also commands industry leadership when it comes to its extensive assets, vertical integration and deep management bench. Even though the stock has underperformed in the past year, we believe many of those factors have been priced in, positioning it well for growth in the near term.”
Overall, UNH ranks 7th among Billionaire David Tepper’s 10 Long-Term Stock Picks. While we acknowledge the potential of UNH, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than UNH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.