Leon Cooperman founded Omega Advisors in 1991. Prior to starting Omega, Cooperman spent 25 years at Goldman Sachs and received an MBA from Columbia University. The fund files a 13F with the SEC at the end each quarter, which discloses many of its long equity positions. Omega advisors focuses on domestic public equities, with a strategy that centers on investing in value equities using fundamental analysis.
We believe that Cooperman has identified five stocks that are value plays. By comparing Cooperman's holdings from the end of 3Q with those from the end of 2Q, we've discovered five stocks that Cooperman was upping or taking a new stake in during the third quarter.
Walgreen Company (WAG) was a new pick for Cooperman's portfolio during this period. The company is expected to increase sales 2.8% in 2013 driven by its renewed agreement with Express Scripts. Walgreen's product mix shift toward generic drugs should also help expand margins. We believe there will be continued weakness due to the customers lost to CVS during the Express Scripts mishap, the effects of which won't go away anytime soon. Even so, Walgreen trades below CVS (16x) on a P/E basis at 14x earnings, and shares also sport a dividend yield twice that of CVS, at 3.2%. Walgreen is one of the top 10 healthcare stocks loved by hedge funds in 3Q (see our entire Top 10 list here).
Family Dollar Stores, Inc. (FDO) was another new pick for Cooperman in 3Q. Family Dollar is expected to see sales increases of 13% in 2013, with strong same-store sales growth of 5.1%. Family Dollar's growth should be driven by strong demand for its consumer staple goods; shares are up almost 25% year to date and now trade at 20x earnings. More importantly, the stock sports a forward P/E of 15x, well below other discount retailers.
Dish Network Corp. (DISH) was a 39% share increase from 2Q for Cooperman and his fund. Dish's third-quarter earnings announcement showed that it beat EPS estimates by $0.08, but also showed slowing subscriber growth - additions of only 19,000 from 111,000 during the same quarter last year. Key metric improvements included lower churn and stable pricing, with Dish also making recent acquisitions in the spectrum sector, suggesting that the satellite company could be gearing up for a wireless strategy. Not only does Leon Cooperman love Dish, but fellow billionaire George Soros has a penchant for the stock as well. Soros owned close to 4 million shares at the end of last quarter (check out all of Soros' newest picks).
Moving on, Cooperman increased his Motorola Solutions Inc (MSI) position by 55% in this period and recently saw S&P boost its target price to $58 - compared with its current price of around $54. Future growth for the communication device company is expected to come from government-segment spending, despite weakness in its enterprise business. Motorola Solutions trades at the very top end of the communications industry with a 23x P/E, but its 15x forward P/E puts it more in line with its peers, making it an attractive buy at these levels.
Capital One Financial Corp (COF) was a 46% increase for Cooperman's portfolio in 3Q. Capital One is expected to see solid growth from a rise in credit card volumes. Its acquisition of ING Direct has raised deposits by over 75%, setting the company up to purchase HSBC's U.S. card portfolio for around $27 billion. With the buy of ING, the financial services company is now making the proverbial shift from borrowers to spenders, so to speak. Capital One's 10x P/E is in line with other peers, but its 10%+ expected five-year annual EPS growth rate puts its PEG below 1.0, creating a value opportunity. Capital One is one of the 10 financial stocks loved by hedge funds in 3Q (check them all out here).
To recap: we believe that Dish should see solid growth in its initiative to expand Internet services to rural areas, while Motorola should see expansion from a rebound in infrastructure spending. Cooperman's retail bets, Walgreen and Family Dollar, should see solid growth in generic sales - Walgreen - and expansion to consumable goods - Family Dollar. Meanwhile, Capital One's recent acquisitions should help diversify the institution's products, while helping its shares trade with some stability.