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Billionaire David Tepper bets heavily on these two stocks with “strong buy” dividends
Anyone who tries to keep up with where the markets are going can be forgiven for showing signs of dizziness. Markets are being pulled violently in opposite directions recently, making it difficult to form a coherent investment strategy. It is at times like this that some expert advice can provide a clearer picture. Hardly anyone on the street is more highly regarded than billionaire David Tepper. Co-founder of the global hedge fund Appaloosa Management, Tepper is known for his bold and confident style, characteristics that can be useful in today’s confusing climate. Tepper made his fortune – and built his hedge fund – by investing in troubled assets and profiting a lot when markets later reversed. And with $ 14 billion in assets under Appaloosa’s management, it’s natural for Wall Street to notice when Tepper has something to say. “Basically, I think rates have temporarily taken advantage of the change and are expected to be more stable in the coming months, which makes it safer to be in stock for now,” noted Tepper. The billionaire believes that the rise rates should stabilize and points out that, with the approval of the coronavirus fiscal stimulus package by the Senate, it is currently “very difficult to be pessimistic”. With that in mind, we opened the TipRanks database to get information about two of Tepper’s recent new positions. These are strong buying stocks – and perhaps more interesting, both are strong dividend payers, with annual returns in excess of 7%. We can turn to Wall Street analysts to find out what else could have brought Tepper’s attention to these actions. MPLX LP (MPLX) We will start with a long-standing name in the energy sector. Marathon Petroleum, one of the Big Oil giants, operates in the United States, the Rocky Mountains, the Midwest and along the Gulf Coast, transporting oil and natural gas from wells to storage and distribution facilities. MPLX benefited from the general economic reopening in the second half of 2020, with stockpiles increasing as more people returned to work and demand for fuel increased. Overall, stocks have risen 98% in the past 12 months. In the top row, revenues recovered from a drop in 2Q20, gaining 8.5% to reach US $ 2.17 billion in the fourth quarter. Profit, which was strongly negative in 1Q20, increased steadily during the rest of the year, reaching 64 cents per share in the 4th quarter. But perhaps the most important metric for investors is MPLX’s net cash position – for the entire year 2020, the company generated $ 4.5 billion in cash and returned more than $ 3 billion to shareholders. In its most recent dividend statement, the company announced a payment of 68.75 percent per common share, or $ 2.75 annually. This gives a yield of 10.5%, well above the average yield. And David Tepper, in the last quarter, bought heavily at MPLX, holding more than 3.45 million shares. At current prices, these shares are now worth $ 89.77 million. As noted, this is a new position for Tepper, and it is substantial. Covering these shares for RBC Capital, 5-star analyst TJ Schultz believes that the company’s strong balance sheet justifies a positive feeling. “[We] I think MPLX is well positioned to continue stable cash flow and distributions in 2021+. Management reinforced MPC’s commitment to renewing MPLX contracts. Some modest slippage in the prices of renewable short-term barges, but the heavier contracts were established more recently (longer runway) or are already linked to the dynamics of FERC oil. We like the improved FCF profile and the solid balance sheet of MPLX, which we think gives management more options to return value through repurchasing units next year, “wrote Schultz. To that end, Schultz gives MPLX a goal price of $ 29, which implies a 12% increase, to accompany its Outperform (ie Buy) rating. (To watch Schultz’s history, click here) The strong appreciation of MPLX’s shares pushed the share price to close to the average target price. The shares are selling for $ 25.92 now, with an average target of $ 27.67, suggesting room for further growth of ~ 7%. The stock has a strong buy consensus rating, based on 5 purchases and 1 waiting granted in the last 3 months. (See the analysis of MPLX shares in TipRanks) Business product partners (EPD) Staying with the energy sector, we will see another intermediary company that caught Tepper’s attention. Partners of corporate products, with a cap US $ 50 billion market italization, is an important player in the intermediate segment and operates a network of assets that includes more than 50, 000 miles of gas pipelines, storage facilities for 160 million barrels of oil and 14 billion cubic feet of natural gas and shipping terminals on the Gulf Coast, Texas. The story here is similar to that of MPLX. The Enterprise has been hampered by the blockages put in place to combat the COVID pandemic, but in the past six months it has seen a recovery in stock value and revenue. The shares rose 40% in that period, while revenues in the fourth quarter exceeded $ 7 billion. Overall, Enterprise’s performance in 2020 showed declines compared to 2019 – but an important metric showed a gain. Of the company’s total cash flow, $ 5.9 billion, $ 2.7 billion was free cash flow (FCF), or cash available for distribution. The 8% increase over the previous year has allowed the company to maintain the payment of regular dividends – and even to increase the payment in the most recent statement, from 44 cents per common share to 45 cents. With an annualized payment of $ 1.80 per share, this gives a hefty 7.7% yield. Tepper’s new position in the EPD is substantial. The hedge fund leader bought 1.09 million shares for his first position, a purchase that is now worth $ 25.23 million. JPMorgan analyst Matt O’Brien takes the side of the bulls, reiterating a purchase rating and a target price of $ 28. This target conveys his confidence in the EPD’s ability to rise 20% from current levels. (To see O’Brien’s track record, click here) “With capex needs dwindling, EPD expects to achieve positive discretionary free cash flow in 2H21, allowing total financing capex, increasing cash distributions and opportunistic repurchases. Overall, we continue to believe that EPD offers the ideal combination of attack and defense, with attractive built-in operational leverage, notable barriers to entry, low leverage and the best financial flexibility in the category, ”commented O’Brien. Wall Street analysts can be very contentious – but when they agree on a move, it is a positive sign for investors to take note. This is the case here, as all recent analyzes on EPD are purchases, making the consensus rating a strong buy unanimously. Analysts have given an average price target of $ 27, indicating an increase of ~ 15% compared to the current stock price of $ 23.38. (See TipDanks EPD stock analysis) To find good ideas for trading dividend stocks in attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all TipRanks stock perceptions. Disclaimer: The opinions expressed in this article are exclusively those of the analysts presented. The content should be used for informational purposes only. It is very important to do your own analysis before making any investment.