Barron's Interview: Six Winners No Matter Where We Go From Here

by: SA Eli Hoffmann

Barron's interviews Omega Advisors' top money managers Lee Cooperman and Steven Einhorn, whose fund has returned 16% annually since 1991. They think the market's downside is limited, as perhaps is its upside, but that there is an abundance of quality stocks available now - on the cheap.

We are buying plenty of attractively valued securities, but this is not an environment to be complacent... The ingredients for a decent bottom are in place, but any significant upside is going to require help from two areas. No. 1, we have to see a bottoming in home prices. No. 2, we are going to have to see crude-oil prices recede.

Still, the following tailwinds limit the market's downside.

  • Valuation - "The market looks attractively priced in an absolute sense and relative to inflation, bond interest rates and to other assets." At 14x this year's earnings, the market's well below its long-term average. Add to that weak bond yields and healthy net profit margins, and the market seems attractively priced.
  • While far from robust, economic weakness doesn't seem to be gathering significant speed.
  • The incoming president will introduce a second fiscal stimulus package, likely larger than that of his predecessor.
  • Non-financial earnings continue to beat consensus.

Stocks they like

  • Corning (NYSE:GLW) - "There are thousands and thousands and thousands of retailers that sell flat-screen TVs. There are roughly 50 companies that make the panels. There are only three guys that make the glass."
  • Transocean (NYSE:RIG) - it owns one-third of the world's supply of deepwater drilling rigs, and has a $40B backlog - the size of its market cap.
  • HMOs - WellPoint Health Networks (WLP), UnitedHealth (NYSE:UNH) and Aetna (NYSE:AET) have been over punished.
  • SLM (NYSE:SLM) - "Probably 95% of its loans are government-guaranteed and the stock sells at 10 times earnings. A year ago, a private-equity firm wanted to buy Sallie for $60. You can buy it now at $18."