Leon Cooperman has one of the older hedge funds around. He founded his Omega Advisors in 1991, after spending 25 years at Goldman Sachs. Cooperman's career at Goldman Sachs was impressive. He worked his way up the corporate ladder from conducting investment research in the company's asset management arm to becoming the general partner, chairman and CEO of Goldman Sachs Asset Management.
When Leon Cooperman started his Omega Advisors, he was just 50 years old and had only $450 million in capital. When Leon Cooperman filed his fund's 13F on February 10, he declared 71 positions with a total value of $3.97 billion. This represents a fair increase from the third quarter, when Cooperman had just 59 positions with a total value of $3.37 billion. Leon Cooperman has grown his fund by using a strategy that looks at the best and biggest companies in a sector, then choosing the ones that are priced the best from that grouping. As such, Omega Advisors has a range of investments, from financial stocks like JPMorgan Chase (JPM) and automotive companies like General Motors (GM) to personal technology companies like Apple (AAPL) and airlines, like United Continental (UAL).
Omega Advisors tends toward companies that it believes will outperform over the long term, making them a great fund for do-it-yourself investors. Investors should pay particular attention to the largest positions in the Omega Advisors portfolio, as these are the ones Leon Cooperman is most bullish about.
As of the end of the fourth quarter, the largest position in the Omega Advisors' portfolio was $8.17 billion market cap financial company SLM Corp (SLM). Cooperman had 17.57 million shares in the company, valued at $235.43 million. This is a slight reduction in the number of shares from the end of the third quarter, when Omega Advisors held just under 18.85 million shares, but the value is greater. The fund held just $234.65 million in SLM at the end of September.
We can see the reason for Cooperman's conservative play here. SLM was trading at $15.98 when the markets opened on February 13. Analysts expect fair growth in share price, estimating that the company could hit $19 a share in the next year. In addition to the upside, SLM offers a 50 cent dividend (3.10% yield). SLM is also priced low relative to its future earnings, with a forward P/E of 7.28. Over the last 52 weeks, SLM's share price increased by 6.66%, easily outperforming the S&P 500's 1.79% for the same period. But, there is still some reason for pause.
SLM's quarterly revenue growth is an issue. It stands at -12.00%. This may be better than KeyCorp (KEY), a stock comparable to SLM, which has quarterly revenue growth of -20.70%, but it falls far short of a larger rival, like Bank of America (BAC). Then, there is SLM's pricing. As low as the company is priced, its P/E ratio is actually high for its industry, which has an average forward P/E of 7.18. KeyCorp has a higher forward P/E of 9.20, but Bank of America is in the ball park at 7.48.
So, why not pick Bank of America? Well, for all its growth and low pricing, the company is much more volatile than SLM. Bank of America has a beta of 2.65 whereas SLM has a beta of just 1.63. SLM also pays a higher dividend than Bank of America's 4 cent dividend (0.50% yield). We like SLM for the risk-averse investor. It has modest growth with high dividends and less risk.
Leon Cooperman is also bullish about Atlas Pipeline Partners (APL). His Omega Advisors owned 5.36 million shares in the company at the end of the fourth quarter, down from 5.74 million at the end of the third quarter. However, while the total volume of shares went down, the value of Cooperman's position in the stock did not. It went from a value of $171.49 million at the end of September to $199.24 million at the end of December. The $1.91 billion market cap natural gas company has a similar profile to SLM, even though their industries are very different.
Atlas Pipeline Partners was trading at $35.79 a share when the markets opened on February 13. The company has a mean one-year target estimate of $42.33 and pays a high $2.20 dividend (6.10% yield). The company is priced a little high relative to its future earnings, with a forward P/E of 22.11, but it has high quarterly revenue growth of 53.30%, compared to 12.60% for its industry. Atlas Pipeline Partners is much smaller than many of its competitors - rival ONEOK, Inc (OKE), for example, has a much larger market cap at $8.41 billion - but Atlas has higher quarterly growth. ONEOK has much smaller quarterly growth of just 22.20% but it is priced similarly relative to its future earnings, with a forward P/E of 21.94. It also pays a much smaller dividend yield, at $2.44 a share (3.00% yield).