By Matt Doiron
Billionaire Leon Cooperman, head of Omega Advisors, appeared on CNBC on June 19, to discuss Fed policy and potential stock picks, which have upside potential in what he believes is a generally fairly valued market. We track Omega's quarterly 13F filings alongside those of hundreds of other hedge funds, using the included information to help us develop investment strategies (we have found, for example, the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year), allowing us to track what Cooperman (and other managers) are doing. Read on for our quick take on some of the stocks he discussed on CNBC or see the most recent list of Omega's stock picks.
The first stock that Cooperman named in his appearance was Thomas H Lee Credit (TCRD), stating that the yield is 9.5% - much more attractive than the yield on Treasuries. The company lends to middle-market companies, primarily through mezzanine debt securities, so the high yield can be somewhat justified by the risk of Thomas H Lee Credit's business. Net investment income surged 20% in the first quarter of 2013 versus a year earlier, and even with the company's share count increasing net investment income per share rose to 33 cents. Annualized, that makes for a P/E multiple of 11.
The billionaire also listed Linn Energy (LINE) as a pick, stating that his fund considers the assets of the oil and gas company to be worth $40 per share (as opposed to a current price of about $35).It too is a high yield play, with Cooperman pointing to a yield of about 9% following the close of its deal to acquire Berry Petroleum. We'd note that Linn's stock price has dropped 12% in the last three months. Analyst expectations for 2014 place Linn's current valuation at 21 times forward earnings estimates. The yield is certainly high, but we would have concerns including integration risk.
Cooperman also discussed oil and gas company Atlas Resource Partners (ARP), which Omega had owned 1.1 million shares of at the end of March. ARP yields over 11% at current prices and dividend levels, and Cooperman says that he thinks that the market is not valuing the stock at a premium to its assets; between those two factors, he believes it is an attractive income play. The stock is down 16% in the last year against a rising market. While Atlas Resource Partners has been unprofitable on a trailing basis, it trades at 16 times consensus earnings estimates for 2014.
Dish Network (DISH) was another stock that Cooperman mentioned during the segment. The hedge fund manager expressed his respect for the company's management, and while he would prefer for Dish to win its battle with Softbank for control of Sprint in order to give the company more growth opportunities he likes the stock even without that factor. Currently Dish is valued at a trailing EV/EBITDA multiple of 8.0x. Cooperman did mentioned that the company is generally a mature business, and with revenue and earnings down according to recent reports we aren't sure it's actually a good value.
Among the stocks Cooperman said Omega is buying at the present time is pharmacy benefit management company Express Scripts (ESRX), claiming that the company is growing at 20% per year. Wall Street analysts agree that Express Scripts has high upside potential, with their forecasts implying a forward P/E of 13 and a five-year PEG ratio of 0.9. We're interested in the industry, and would be interested in learning more about the company. In Omega's most recent 13F, the fund reported a position of 2.7 million shares in Express Scripts; Bain Capital's hedge fund Brookside Capital was another major shareholder (find Brookside's favorite stocks).