What does David Tepper do when he’s not busy with his Carolina Panthers football team? We can place making a lot of money at the top of the list.
Tepper ranks among the greatest hedge fund managers of the century. Thanks to the meteoric growth of Appaloosa Management, the fund he created in 1993, his net worth now stands at nearly $20.6 billion.
This considerable total is a direct result of Tepper’s judicious stock selection over the years. He’s still there, with Appaloosa’s portfolio full of winners. Tepper has invested nearly $141 million in this ultra-high-yielding dividend stock — and it’s a screaming buy right now.
An intermediate monster
The billionaire hedge fund CEO particularly likes technology stocks. Appaloosa’s holdings include five of “Magnificent Seven” shares. But Tepper is not limited to just one sector. His second-largest non-technological position is midstream energy sector leader. Energy transfer (NYSE:ET).
Energy Transfer operates more than 125,000 miles of pipeline. Its assets also include natural gas liquids (NGL) fractionators, storage facilities and terminals as well as other energy infrastructure. The company operates in all major oil and gas producing basins in the United States.
Acquisitions have been a key source of Energy Transfer’s growth in recent years. For example, in November 2023, the company completed its purchase of Crestwood Equity Partners LP for $7.1 billion.
Tepper owns nearly 9.8 million shares of Energy Transfer. He initiated an initial position in 2017. Although he has bought and sold shares several times since, Energy Transfer still represents almost 2.4% of his total portfolio.
Why Energy Transfer is a screaming buy
I think Energy Transfer is a screaming buy right now, but not just because Tepper owns it. There are several reasons why I like the stock.
Let’s start with the company’s distributions. Energy Transfer’s distribution yield currently stands at 8.75%. Last month, the company increased the payout by 3.3%. It targets annual distribution growth of between 3 and 5%.
Valuation is also an important factor. Energy transfer multiple of forecast profits is only 8.3x. How cheap is it? All S&P500 the energy sector trades at more than 11.8 times forward earnings.
I like it when company management teams have a lot of skin in the game. This helps ensure that they are well aligned with the interests of shareholders (or, in this case, unitholders). Energy Transfer’s management and independent board members own approximately 11% of the company. That’s more than five times the level of internal ownership of the midstream energy leader’s peers.
What about growth? I think the energy transfer looks pretty good on that front as well. Of course, efforts to reduce carbon emissions will almost certainly boost the adoption of renewable energy sources. However, demand for the NGLs, natural gas and crude oil that Energy Transfer transports and stores is expected to increase further over the coming decades.
The company is also positioning itself for the future. For example, Energy Transfer is working to capture carbon dioxide and transport it through its existing pipelines. It also operates eight renewable natural gas facilities.
What’s not to like?
Like any investment, Energy Transfer carries certain risks. The company’s long-term debt exceeds $51 billion. If interest rates remain high or increase in the future, Energy Transfer’s borrowing costs will increase and negatively impact earnings.
The stock may also be volatile. Although Energy Transfer’s revenue and cash flow are well insulated from oil and gas price fluctuations, its unit price is not.
Finally, Energy Transfer is a master limited partnership (MLP). Managing taxes related to investing in MLPs is more complicated than that related to other stocks.
The good news is that these drawbacks should not outweigh the many advantages that Energy Transfer offers investors. This certainly seems to be the case for David Tepper.
Should you invest $1,000 in energy transfer right now?
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.
Billionaire David Tepper invested nearly $141 million in this super-high-yielding dividend stock — and it’s a screaming buy right now was originally published by The Motley Fool
