David Tepper Interview: "I Am Cautious But I Am Optimistic"

David Tepper, founder of hedge fund Appaloosa Management, appeared on CNBC this morning in an effort to raise awareness for his campaign to raise $15 million for the New Jersey community food bank (he's already raised $9m).

While he was there, he also of course shared his latest economic and market views. You'll remember that last time Tepper appeared on CNBC in September 2010, he was bullish on equities and his rationale inspired what many are calling the 'Tepper rally.' Since his comments then, the market has rallied more than 13%. Appaloosa's Thoroughbred fund returned 22% in 2010 and 100% in 2009. See how his numbers stack up against others in our post on 2010 hedge fund returns.

On the Economy

This time around, the Appaloosa hedge fund manager says that quantitative easing has worked and that the economy is better. Tepper also thinks that the unemployment situation will improve, but it won't get back to the lower levels quite seen before the crisis. He notes that the timing of the Federal Reserve's exit from its position of assistance will be important.

On the Market

Tepper also argues that S&P earnings multiples are still relatively low. With the S&P trading around 1,280 currently, he said he'd buy again... but at 1,000 (the same level where he was buying in September). Overall though, he is "cautious but optimistic." This attaches somewhat of a qualifier to the article yesterday that Tepper has turned cautious based on his comments in another interview. But at the same time, he notes that there's still uncertainty in other parts of the world (mainly European debt and China).

Tepper Likes Semiconductors

In terms of specific sectors and companies, he mentioned he likes semiconductors for 2011 and specifically cited Micron (MU). When he was interviewed in September, he mentioned that you could almost 'buy anything' since the Fed was pumping so much liquidity into the system. This time around, he says that you cannot simply 'buy anything' and you have to be more selective.

Regarding other investments Appaloosa currently holds, he mentioned he owns Banco Santander (STD) traded in Spain which we already knew from his Ira Sohn presentation in May 2010, but he also owns AIA, a subsidiary of AIG that recently IPO'd in Asia. We've noted that Bruce Berkowitz's Fairholme Capital participated in the AIA IPO.

Comments On His Dean Foods (DF) Stake

Tepper also talked about his new position in Dean Foods (DF). He likes the milk business in that Dean Foods has a dominant market position. But looking for areas of growth in the industry, he points to soy milk, almond milk, and organic milk and highlights that competitors aren't really doing anything there. Appaloosa thinks that the current milk squeeze (low retail prices) will be eliminated in the next year and they feel the company is cheap.

Embedded below is the video from his interview (email readers will need to come to the site to view it). Here's his thoughts on the macro environment and market in general:



And then here are Tepper's thoughts on more specific subjects like semiconductors, banking, and more niche topics:



To see what Tepper has been investing in lately, sign-up for our newsletter as his latest portfolio will be released in a few weeks.

David Tepper Turns Cautious

It appears that Appaloosa Management founder David Tepper has turned cautious on the markets. In a recent interview with the NY Post, Tepper has interjected some common sense and says that "when things go up too high, they will go down."

The hedge fund manager seems to be advocating taking some profits and reducing risk, or at the very least, bracing for any potential impact. From the NY Post, "Tepper said while 'the biggest opportunities' will remain in equities, 2011 will be 'harder and not without risk.' "

If you read into his comments, he obviously still sees equities as the more favorable asset class, but he also hints that you'll have to be more selective with your picks (rather than simply smashing the 'buy' button on anything, a trade that has pretty much worked since September). If you're looking for picks from the hedge fund manager himself, Tepper recently bought Dean Foods (DF). And you can of course see the rest of Appaloosa's picks in our Hedge Fund Wisdom newsletter (new issue due out in a few weeks).

We are pointing this out because Tepper is scheduled to appear on CNBC tomorrow. And last time he appeared on the network, his bullish take on equities sent the stock market rallying furiously higher in what many have dubbed the 'Tepper rally' (it's is up over 13% since). Will he move markets again tomorrow? We'll have to wait and see what his extended comments are. But if this interview is any hint of what he'll have to say, those trading on his every word will be inclined to take some profits and be more selective with their holdings.

As we've highlighted on the site, market strategist Jeff Saut has also been cautious on the markets, but will be an eventual buyer of any sizable dip.

David Tepper Buys Dean Foods (DF)

David Tepper's hedge fund firm Appaloosa Management has started a brand new position in Dean Foods (DF). Per a 13G filed with the SEC, the hedge fund disclosed a 7.35% ownership stake in DF with 13,396,536 shares due to trading on December 28th, 2010. The majority of shares are held in Appaloosa's Palomino fund. You can view Appaloosa's other investments in our newsletter, Hedge Fund Wisdom.

Shares of Dean Foods spiked over 11% on Friday as Appaloosa disclosed its stake. The company's shares have been on somewhat of a gradual death spiral, down 45% over the past year. In the near-term, it seems as though the company is being squeezed by input costs (namely commodities). Whether Tepper and his team see this as a value play remains to be seen, as no clear thesis has been revealed. Or, maybe this trade simply falls under his 'don't fight the Federal Reserve' trade. After all, in September Tepper said he likes equities here.

Per Google Finance, Dean Foods is "a food and beverage company. The Company operates through two segments: Fresh Dairy Direct and WhiteWave-Morningstar. Fresh Dairy Direct, formerly DSD Dairy, is a processor and distributor of milk and other dairy products in the United States, with products sold under more than 50 local and regional brands and a range of private labels."

To see what Appaloosa and other hedge funds have invested in, read up on their plays in our newsletter.