Every investor wants an ‘in,’ some key to unlock the best returns in the markets. For some, that key can be found in following the market’s legendary investors, the stock gurus who have leveraged their intuition and knowledge to build up billion-dollar fortunes. And among those legendary investors, David Tepper stands tall.
Tepper is the co-founder of Appaloosa Management, which he launched in 1993 after leaving Goldman Sachs. The hedge management firm took off with $57 million initial seed money, and since then it has been ever upwards; Appaloosa had $12 billion in assets under management in 2021.
Looking into Appaloosa basket of stocks, we’ve chosen three of the fund’s new holdings that TipRanks’ database reveals as “strong buys” and offer healthy upside potential. Let’s take a closer look and see what Wall Street analysts have to say.
Based on the Isle of Man under UK regulation, Paysafe is a multinational online payments processor, offering services through its eponymous brand as well as through its subsidiaries, including Neteller and Skrill. The company saw a transaction volume of $92 billion last year, from businesses and consumers in 40 currencies around the world. Paysafe’s payment solutions are geared for mobile use, and offer real-time analytics.
Like many companies in the last two years, Paysafe jumped on the SPAC wagon, entering the public markets through a merger transaction with a special purpose acquisition company (SPAC), in this case, Foley Trasimene Acquisition Corporation II. Paysafe and Foley completed the merger process in March of this year, and on March 31 PSFE shares started trading on the New York Stock Exchange.
This past May, Paysafe released its first earnings report as a public company. For the first quarter, the company showed revenue of $377.4 million, up 5% year-over-year, derived from a total payment volume of $27.7 billion, up 8% yoy. The company firmed up its balance sheet through a one-time debt reduction payment of $1.2 billion, made after the SPAC merger, and ended the quarter with a free cash flow of $108.5 million, up 28% from the year-ago quarter.
Tepper, in his 13F filing for Q1, revealed that his fund purchased 10 million shares of PSFE, a huge investment in the new stock. At current valuation, this holding is worth $118.2 million.
Covering Paysafe for RBC, 5-star analyst Daniel Perlin reminds investors that there are considerable gains in store for PSFE in 2021. Perlin rates PSFE an Outperform (i.e. Buy), and his $19 price target implies an upside of 61% on the one-year time horizon. (To watch Perlin’s track record, click here)
“We believe PSFE offers a unique combination of digital wallet capabilities, accelerated cash conversion for consumers who would otherwise be out of the ecom loop, and integrated payments, all focused on specialized & complex end-markets, which creates a competitive moat and pricing power,” Perlin opined.
Perlin adds his view that Paysafe offers one of the best combinations of services in online payment space: “PSFE has created a unique two-sided network enabling merchants to accept online & in-store payments (in specific niche verticals), while also offering consumers a digital wallet & eCash solution, which converts cash-heavy users to digital users. We believe it’s this combination that enables PSFE to generate superior take rate economics vs. peers.”
Overall, it’s clear that Wall Street’s analysts generally agree with Perlin. Paysafe has 6 reviews on record, and all are positive, making the analyst consensus a unanimous Strong Buy. The average price target of $17.67 suggests an upside of ~50% from the trading price of $11.82. (See PSFE stock analysis on TipRanks)
Baidu, Inc. (BIDU)
The next Tepper pick comes from China. Baidu is that country’s largest online search engine, and in fact, is the largest search platform in the Chinese language internet. The 1.3 billion Chinese speakers make up the world’s largest single language bloc, and give Baidu a huge natural userbase. Baidu’s holds more than 76% of the search engine market share in China, making it the world’s second-largest search engine, and it is investing heavily in AI initiatives. The company has a market cap of $64 billion.
So Baidu is big. It hit $4.3 billion in top-line revenue for 1Q21, up 25% year-over-year. Diluted EPS, at $11.66, was light-years ahead of the year-ago value of 1 cent, and up 404% from the $2.31 reported in 4Q20.
All of this – the firm position leading China’s search market, and the solid earnings report – makes Baidu attractive. David Tepper, for his part, has taken a slow step into this stock, with an initial position of 45,000 shares purchased during the first quarter. This bloc of shares is worth $8.83 million at current prices.
5-star analyst Fawne Jiang, from Benchmark, writes of BIDU: “We are positive on the long-term growth prospects of AI-powered businesses in China, and BIDU is poised to benefit from the favorable industry trends as a leading AI player. We believe BIDU is well-positioned to grow into a meaningfully expanded TAM capitalizing on growth opportunities in cloud, smart transportation, intelligent driving and other AI initiatives.”
To this end, Jiang rates BIDU stock a Buy, with a $370 price target to indicate an upside of ~95% in the next 12 months. (To watch Jiang’s track record, click here)
The word of the Street is an overwhelmingly bullish one for this tech stock, as TipRanks analytics exhibit BIDU as a Strong Buy. Out of 19 analysts polled in the last 3 months, 16 say Buy while the other 3 say Hold. With a return potential of 62%, the stock’s consensus target price stands at $308.13. (See BIDU stock analysis on TipRanks)
DR Horton, Inc. (DHI)
Last up, Texas-based DH Horton is the largest homebuilding company in the US, counting by volume. The company has operations in 91 markets across 29 states, and has held a leading position in the industry since 2002. For the trailing 12 months ending this past March, DH Horton closed on 76,330 new homes. The company builds homes across a wide spectrum of price ranges, from $150,000 to $1 million in value.
Over the past 12 months, DHI shares have been climbing steadily. The stock is up 63% in that period, outpacing the S&P’s 37% one-year gain. In the most recent quarterly report, for fiscal 2Q21, DHI reported a 95% yoy increase in EPS, to $2.53, while top-line revenues rose 43% to reach $6.4 billion. These gains come as the real estate sector is rebounding from the COVID pandemic. The company saw its net sales orders increase 35% from the year ago quarter, to 27,059 homes. The aggregate value of these orders was $8.8 billion, up 47%.
In addition to the steadily rising share price and financial results, DHI pays out a modest dividend. At 20 cents per share quarterly, it yields a modest 0.8%; the important point here is not that the dividend is large, but that it is reliable, with a 7-year history of growth behind it. It is another steady return from this solid company.
David Tepper, for his part, saw plenty to like in this stock, and his fund opened its DHI position with 1,165,000 shares, now worth $111 million.
BTIG analyst Carl Reichardt also counts himself as a fan. Reichardt gives DHI shares a Buy rating, and his $124 price target suggests the stock has a 36% one-year upside. (To watch Reichardt’s track record, click here)
“This was another exceptional quarter, and DHI remains our favorite large cap stock pick given the company’s deep local market share positions, substantial relative growth, efficient-production business model, breadth of geographic markets, affordable entry-level home focus, consistent cashflow generation and conservative leverage,” Reichardt noted.
Overall, the analyst consensus on DHI is not unanimous, but almost. The Strong Buy consensus rating is supported by 11 Buys against a single Hold. Shares sell for $91.33, and the average price target of $110.25 indicates an upside of 21%. (See DHI stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.