Billionaire Leon Cooperman, the founder, chair and CEO of hedge fund Omega Advisors, has built up a stellar track record as a stock picker by posting a 12.4% average annual total return since inception for his flagship fund, versus 9.5% for the S&P 500 Index (SPX) over the same period. Cooperman, who is constantly scouring the equity markets for opportunities, says he sees especially good value in 6 stocks today, including AMC Networks Inc. (AMCX), Citigroup Inc. (C), CVS Health Corp. (CVS), Keane Group Inc. (FRAC), Nabors Industries Ltd. (NBR) and United Continental Holdings Inc. (UAL), according to an interview with CNBC.
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Source: CNBC; data as of market close on July 25.
In his search for value stocks, Cooperman told CNBC that his favorite metrics include price/earnings (P/E) ratio and free cash flow (FCF), and that he also takes a close look at company balance sheets. He discussed United Continental and AMC Networks at length with CNBC, while offering shorter comments on the others.
UAL: 'Eating Their Own Cooking'
Airline operator United Continental (UAL) was one of Cooperman's top picks last year. At the time, he cited several positives for the stock, which has been soaring. For one, he notes that the company is buying back stock aggressively, having reduced its equity base by about 45% during the last 4 years, and future share repurchases are projected to shrink its equity by roughly 10% annually. Additionally, he says that UAL has "good sponsorship" in the fact that Warren Buffett owns about 10% of the company. While he's not betting on an acquisition by Buffett, he believes this to be a possibility.
Cooperman also noted that, whenever he takes a UAL flight, it's full. He said, "I like what they're doing with cash," adding that "they're eating their own cooking, believing what they're doing." In this vein, he cited the case of their new chief operating officer (COO), who wanted to decline all cash compensation and be paid instead with stock options.
AMC Networks: 'Significantly Undervalued'
The Dolan family, which owns 17% of cable TV company AMC Network and already controls 60% of the voting rights, is acting as if "they think it's significantly undervalued," Cooperman said. Specifically, he added, "you've got to pay attention when a 17% owner is aggressively buying stock." Cooperman believes that AMC Networks has "a takeout value close to $80," which would be approximately a 33% premium from its current price. He noted that the company is trading at a P/E of only 7 times this year's earnings, and just 6 times next year's.
'Oil Rising, Not Declining'
With respect to Keane and Nabors, both of which provide oil and gas drilling services, Cooperman said that "the price of oil is rising, not declining." Additionally, he finds that these companies are cheaply valued, at "2, 3, 4 times cash flow." Rounding out his picks, Cooperman notes that health care company CVS and banking giant Citigroup are each trading at about half the market multiple, while growing faster.
Why Cooperman Likes Alphabet
Google parent Alphabet Inc. (GOOGL) is Cooperman's biggest holding, at between 5% and 6% of his fund's value. In another segment of his CNBC interview, he said: "growth is very impressive relative to the valuation...it is very reasonably priced. Fortress balance sheet, dominant industry position, growing very rapidly." As reported by Barron's, second quarter revenues were up 26% year-over-year (YOY) and earnings beat analysts' estimates. Few companies with over $100 billion in annual revenues are growing as rapidly as Alphabet, Barron's observes, while quoting a research note from Morgan Stanley that cites Alphabet for "investing harder than ever to extend its advantage."