By Matt Doiron
Six to seven weeks after the end of each quarter, hedge funds and many other investors are required to file 13Fs with the SEC, disclosing many of their long equity positions in U.S. stocks as of the end of the quarter. We have used this information to discover findings such as the fact that the most popular small-cap stocks among hedge funds produce an excess return of 18 percentage points per year (learn more about hedge funds' small cap picks). 13Fs can also be evaluated on a stand-alone basis, as a list of stock picks, either by looking at a fund's largest positions or by comparing the newest filing to the previous one to see which stocks the fund was buying. Omega Advisors, a hedge fund managed by billionaire and former Goldman Sachs Asset Management head Leon Cooperman, recently filed its 13F. Read on for our thoughts on the five largest new holdings in Omega's portfolio or see the full list of Cooperman's stock picks.
The fund stepped into an activist minefield by buying over 24 million shares of natural gas producer SandRidge Energy Inc. (SD). A number of investors are agitating for change at the company, perhaps emboldened by the management reforms at peer Chesapeake (CHK). Other investors are standing by SandRidge's management; publicly, Cooperman has not committed to supporting either faction. SandRidge is down 37% in the last year, and 13% of the outstanding shares are held short. The company is expected to see net losses in 2013, despite increases in production (and therefore revenue) as low natural gas prices make profitability tricky.
Cooperman was also buying Freeport-McMoRan Copper & Gold Inc. (FCX), another somewhat controversial move. Freeport-McMoRan recently announced the acquisition of two related oil and gas companies; these deals came on very generous terms and diversify the company away from copper and gold, both of which disappointed many investors. The stock trades at 7 times forward earnings estimates, and at least in historical terms has paid decent dividends. While we're not happy about Freeport-McMoRan's decision either, the stock is down almost 20% since the deal was announced and so that may be priced in.
Omega initiated a position of 3.2 million shares in Facebook Inc. (FB). With a number of other hedge funds buying into Facebook, the social networking company worked its way up to fifth on our list of the most popular tech stocks among hedge funds (find more tech stocks hedge funds love). Facebook is certainly not cheap: the forward earnings multiple is 34, and that assumes that Wall Street analysts are correct in their growth projections for the next couple of years. Thus far, Facebook Inc. has delivered strong revenue numbers but these have been accompanied by higher costs, which have limited earnings growth.
$1.2 billion market cap company Harbinger Group Inc. (HRG) was another of the fund's new stock picks. The stock is up 85% in the last year, matching the growth rate of the company's earnings last quarter compared to the same period in the previous fiscal year. While the current trailing earnings multiple already prices in very high growth, analyst consensus for the fiscal year ending in September 2014 has the forward P/E at only 10. In addition Harbinger looks like a decent value in cash flow terms with an EV/EBITDA multiple of 4.6x.
Cooperman and his team bought 1.3 million shares of VeriFone Systems Inc. (PAY), a $2 billion market cap company, which provides electronic payment systems supporting credit and debit cards at retail and other businesses. The stock price is down 62% in the last year as margins have been low (contributing to lower earnings) but Wall Street analysts are predicting a turnaround here given the low forward earnings multiple and five-year PEG ratio. Almost 10% of the outstanding shares are held short, so a number of market players are skeptical, but it might be worth studying the bull case for VeriFone.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.