David Tepper Not as Optimistic About Stocks as He Could Be

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  • Says it's not a bad idea to take some cash off the table.
  • Market expectations for corporate earnings are very high.

David Tepper, the founder of $20 billion hedge fund Appaloosa Management, said he’s not as optimistic on the stock market as he could be because expectations for earnings are very high.

“I’m not as bullish as I could be because I have problems with earnings growth, problems with multiples,” the billionaire investor told CNBC Thursday, referring to price-to-earnings ratios. “I can’t really call myself a bull.”

David Tepper

Photographer: Andrew Harrer/Bloomberg

Tepper said that investors who are fully invested should take some money off the table. While Tepper said he currently doesn’t have a big equity portfolio, he would be a buyer if the market declined 20 percent.

“We’re not talking about crashes here,” he said. “We’re talking about a market that should correct.”

While down from a five-year high in July, the Standard & Poor’s 500 index’s price-earnings ratio of 17.2 times annual profit is still above its 10-year average of 16.5. This is when companies in the index just saw quarterly earnings drop for the first time since 2009.

Profits in the gauge are forecast to rise by just 0.3 percent in 2015, by far the slowest increase since the end of the last recession in 2009, according to analyst estimates compiled by Bloomberg.

Appaloosa’s Returns

Appaloosa, a credit fund, has gained 12 percent this year through August,  
according to a person with knowledge of the firm. Hedge funds have returned 2.2 percent during the period, according to data compiled by Bloomberg.
Tepper said Apple Inc. shares are “cheap” because the company has lower multiples, though he warned that its exposure to China is problematic. He said his Apple stake accounts for less than 1 percent of his portfolio. The shares rose 2 percent to $112.39 at 12:48 p.m., gaining 1.8 percent for the year.

Tepper said his hedge fund sold its stake in Alibaba Group Holding Ltd., the Chinese Internet firm, by July.

Tepper said Chinese policy makers were making mistakes and that they are on a learning curve as the country transitions to a market economy. China’s surprise devaluation of the yuan last month triggered a rout in global stocks. He said the U.S. economy is “fine.”

Tepper, a former credit trader at Goldman Sachs Group Inc., started his
Short Hills, New Jersey-based hedge fund in 1993.