Forbes.com ran a story this past February entitled "Money Men: The Graham & Dodders." It was of course a reference to the original value investors, Benjamin Graham and David Dodd, who were both finance professors at ColumbiaUniversity in 1934 when they released "Security Analysis", an investment classic and guidebook for every true value investor. In the Forbes article, the author points out four value investors operating today who've earned the right to be called "Graham & Dodders." One of them is Leon Cooperman, CEO of Omega Advisors, whose firm currently manages $2.2 billion in assets. Given Cooperman's reputation, I thought I'd find pick four stocks from his current holdings worth considering. (For more read Investing Books It Pays To Read.)
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Micro Cap - NorthStar Realty Finance (NYSE:NRF)
This New York City-based commercial real estate company does three things: it lends money to others to finance real estate deals, invests in commercial mortgage-backed securities and real estate investment trusts, and owns and manages commercial properties, many of which are healthcare-related. Overseeing $6.4 billion in real estate assets, CEO David Hamamoto has 26 years of real estate investing experience. He and other senior managers own 10% of the company's stock and are committed to its continued success. Like most real estate businesses these days, it hasn't been a walk in the park for the company. NRF's adjusted funds from operations in the third quarter were 25 cents a share, down 32.4% from 37 cents in the third quarter a year earlier.
With debt capital essentially unavailable, the company has had to manage its liquidity efficiently and now sits with $251 million in cash and uninvested funds from its secured term financing. Cooperman's interest in the micro cap is probably its book value, which sat at $7.54 as of September 30, 2009, after removing all unrealized mark-to-market adjustments as well as depreciation. At current prices, NRF's shares are trading at 46% of book value. Eventually, credit will flow more freely and with it, NorthStar's stock price.
Small Cap - Given Imaging (Nasdaq:GIVN)
Anyone who suffers from gastrointestinal disorders will love this company. The Israeli-based firm created the PillCam SB in 2001, allowing patients to swallow a tiny capsule camera that would take pictures of the small bowel that the doctor could visually inspect. In 2004, a second version became available in the U.S. called the Pill Cam ESO. The procedure is a half-hour in length and can be done in your doctor's office. It's that simple. What will they think of next?
Third-quarter revenues increased 13.2% to $35.2 million and GAAP earnings per share were up 82% year-over-year to 13 cents from seven cents. While the company expects revenues to be around $141 million in 2009, which is at the low end of its guidance for the year, GAAP EPS should be well above it, coming in somewhere between 42 and 46 cents, almost double prior guidance. I have a gut feel that this stock's going to do just fine.
Mid Cap - SLM Corp. (NYSE:SLM)
Rising from the ashes, student loan company Sallie Mae is doing just fine. While its stock is up only 9.7% year-to-date, in the past six months it's up a whopping 67.4%. For Jim Cramer bashers, the Mad Money maven picked SLM as his speculative buy way back in June. I guess he can still pick 'em once in awhile. And it looks as though the train's just getting going. Hitting an all-time high around the $60 mark in 2007, earlier this year SLM's stock traded at prices equivalent to 1995. Now that it's making money again, I'd say the upside is far more likely than the downside, notwithstanding its close brush with bankruptcy. The company's third-quarter adjusted earnings per share was 26 cents, 22 cents better than analyst estimates. The stock jumped 20.7% on October 21 on the news. CEO Albert Lord said this about the future: "We expect credit quality to improve earnings in subsequent periods." Amen to that. (Companies can manipulate their numbers, so you need to learn how to determine the accuracy of EPS, see How To Evaluate The Quality Of EPS.)
Large Cap - Transocean (NYSE:RIG)
Transocean is Cooperman's second largest holding behind Sallie Mae. He owns approximately 2.13 million shares, or less than 1% of the largest offshore driller in the world. With a market cap of $27.1 billion and an enterprise value of $38.07 billion, this is one huge company. What's Cooperman's interest? I think it has something to do with its current free cash flow yield of 10.3%. With $12 billion in debt you better be throwing off a lot of cash or it's goodnight. Or maybe it's Goldman Sach's (NYSE:GS) "Buy" rating and a target price of $111, 32% above current prices. At the end of the day, RIG's price-to-book multiplied by its trailing price-to-earnings is 10.5, well below the maximum of 22 allowed by the master himself, Professor Graham. There's value under water.
I probably would not have considered these four companies if it wasn't for Leon Cooperman. It pays to keep an eye on the old pros. When it comes to making a good investment, they understand more than most.
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