By Jake Mann
We track more than 400 hedge fund managers, though just a small fraction (around 10%) have a net worth in excess of $1 billion. One of the most notable billionaires of our time is Leon Cooperman. Cooperman's fund, Omega Advisors, has amassed an equity portfolio of more than $5 billion.
While hedgies' 13F filings are reported to the SEC with a 45-day delay, this actually improves investors' ability to beat the market because, on average, fund managers are early into their investments. Our research has shown that hedge funds' top consensus picks beat the market significantly (see just how much here), so let's take a look at what Leon Cooperman's favorite stock picks were at the end of the fourth quarter.
Sprint Nextel (S) is Cooperman's new No.1 pick after sitting at the 3rd-spot in his 13F portfolio at the end of the third quarter. On the whole, the hedge fund manager boosted his investment in Sprint by 30% in Q4, and since the start of this period, shares have risen 5.8%. The telecom company reported less-than-stellar Q4 earnings, in which Nextel subscriber losses partially led to a loss of 44 cents per share. Still, this met Wall Street's expectations - the company has missed consensus just once in its past six quarters.
A nearing merger with SoftBank (OTCPK:SFTBF), in which the Japanese company will buy a 70% stake in Sprint and a smaller deal to buy out Clearwire (CLWR) are viewed as long-term positives by many investors. At a 50% discount to its industry average price-to-sales valuation, shares of Sprint are cheap, and multiple insider purchases over the past year give an added reason to be optimistic. While there's obvious risk investing in a turnaround story like Sprint, it's hard to ignore Cooperman's bullishness.
American International Group (AIG), meanwhile, is the fund manager's second favorite stock pick. AIG was Cooperman's No.1 holding at the end of Q3, though he downsized his holdings in the insurer by 3% last quarter. It appears that the motivation behind this move was a bit of profit taking, as Cooperman initiated his AIG position in the first quarter of 2012. This purchase occurred two quarters ahead of many other billionaires' AIG bets - George Soros, most notably - and it has paid off significantly for Cooperman since the end of Q1, returning nearly 30%. At a paltry price-to-book multiple of 0.56x, the post-bailout insurer is still extremely cheap.
Sitting at the No.3 spot in Cooperman's newest 13F portfolio is SLM Corp. (SLM), totaling a position just a few tenths of a percentage point smaller than it was at the end of Q3. S&P holds a positive outlook on Sallie Mae's sub-industry, and the Street's average price target on SLM shares represents a 10-11% upside from current levels. Joining Cooperman in Sallie Mae is a host of notable fund managers, including Irving Kahn, D.E. Shaw and Ken Griffin. Shares still trade at a sub-1.0 PEG while paying a dividend yield near 2.7%, so there's plenty here for value and income-seeking investors alike.
Sirius XM Radio (SIRI) comes in fourth place after Cooperman upped his position in the broadcasting company by 11% last quarter. Sirius has already cracked double-digit appreciation for 2013 thus far, as Liberty Media (LINTA) received FCC approval of its much-anticipated takeover bid for the company. Liberty's stake in Sirius rose above the 50% mark in mid-January, and as this author so ardently pointed out, investors are now anticipating "whether or not Liberty Media will participate in Sirius XM's recently announced $2 billion buyback plan." From a valuation standpoint, Sirius also trades at a 12% discount to its industry's average P/E, and analysts still expect 10-11% upside from current levels.
Lastly, Kinder Morgan (KMI) rounds out Leon Cooperman's latest top five, after sitting at the No.8 spot in his portfolio at the end of the third quarter. The fund manager increased his stake in the diversified natural gas company by 7% last quarter, and shares have rewarded this move, returning close to 17% over the past three months. Two Kinder Morgan insiders purchased stock last quarter, and despite its recent appreciation, KMI still sports undervalued earnings (26.5x) and cash flow (11.5x) multiples - both below industry averages. A dividend yield of 3.9% only adds to Kinder Morgan's attractiveness. It's easy to understand why Cooperman upped his position last quarter.