By Matt Doiron
The SEC requires hedge funds and many other large investors to file 13Fs several weeks after the end of each quarter, disclosing many of their long equity positions in U.S. stocks as of the end of the quarter. We have found that these filings can be a useful source of information for investors; for example, the most popular small-cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average (learn more about imitating hedge funds' small cap picks). One of the filers we track is billionaire Leon Cooperman's Omega Advisors. Read on for our thoughts on Omega's five largest holdings as of the beginning of this year, which it had also reported owning at the end of 2010 (or see the full list of stocks the fund reported owning):
Omega disclosed ownership of about 16 million shares of SLM (SLM), the student loan servicing company better known as "Sallie Mae." SLM's stock price is up 51% in the last year, and yet the earnings multiples remain low with the trailing and forward P/Es being 9 and 8 respectively. So analysts are not expecting much earnings growth at the company. Of course, the student lending market is not going to be attractive to many investors, possibly providing part of the explanation for why the valuation is so low with respect to recent performance. SLM pays a dividend yield of nearly 3%.
Cooperman and his team increased the size of their position in Sirius XM (SIRI) by 12% to a total of over 71 million shares. Sirius has also been a big gainer over the last year, and in the first quarter of 2013 revenue and earnings both grew at double-digit rates versus a year earlier. However, the stock may be a bit expensive with analyst consensus for 2014 implying a forward P/E of 28. Billionaire Steve Cohen's SAC Capital Advisors had about 70 million shares in its own portfolio at the end of December, but this was about half as many as it had owned three months earlier (find Cohen's favorite stocks).
Atlas Pipeline Partners (APL) has been another of Omega's long term stock picks with the most recent filing showing a stake of over 5 million shares. The $2.4 billion market cap natural gas gathering, processing, and transportation company has been making quarterly dividend payments of over 50 cents per share for close to two years (though payments are still below where they were in 2008), making for a yield of over 6% at current prices. The stock's beta is 2.1, however, so while Atlas is at least a potential pick for an income portfolio it would not make a good defensive stock.
The fund sold 9% of its shares of Linn Energy (LINE), closing December with 4.3 million shares in its portfolio. Linn, which acquires and develops oil and gas acreage, is another popular dividend stock: it has a history of increasing its payments over time, and at current prices and dividend levels the yield is about 8%. However, Linn does not appear that attractively valued from the perspective of its business with profitability low and with Wall Street analysts projecting low enough earnings in 2014 that the forward P/E is 21.
According to the 13F for Q4 2012, Cooperman kept his holdings of KKR Financial Holdings (KFN) about constant during the quarter at about 14 million shares. KKR Financial Holdings is another stock with dividend payments that are still lower than they were before the financial crisis, but given the price of the stock the yield is quite attractive at first glance. We'd note that KKR Financial Holdings primarily invests in risky securities including high-yield bonds, and so as with SLM many investors will likely avoid it on that basis. The P/B ratio is 0.9, so the stock is valued slightly lower than the book value of the equity.