Gather the top investors in the hedge fund industry into one ballroom, and youre going to come away with some intriguing ways to allocate your assets. Thats certainly the case with the Delivering Alpha investment conference, co-hosted each summer by Institutional Investor and CNBC in New York.
At Delivering Alpha, one thing seems almost certain: Hedge fund legend Leon Cooperman will be there, and he will pitch a basket of equities the best house in the financial asset neighborhood, as he likes to call them during the popular Best Ideas panel.
The Omega Advisors founders performances at the first three conferences have differed from those of his peers in one regard. Whereas others present a main theme or a couple of equities each, Cooperman has treated the gatherings more like client meetings constructing hefty portfolios with ten stocks across several sectors. All ten companies Omegas Cooperman touted two years ago produced gains commensurate with an impressive career that led to his induction into Institutional Investors Alphas Hedge Fund Hall of Fame.
Cooperman founded his firm in 1991 after a successful 25-year career at Goldman Sachs & Co., where he ultimately headed the firms asset management arm after many years topping IIs All-America Research Team. His aim has been simple. We have a very narrow assignment, he told Institutional Investors Alphain a 2013 interview as part of his Hall of Fame induction. And thats to know the companies we own better than anybody else, and own the right companies that generate the gains that were looking to achieve.
Last years conference took place in the midst of the equity markets best year since 1997, when the index finished up more than 31 percent. Cooperman again defied the structure of a single best idea to put forth ten stocks from his coffer, breaking them down into three categories: quality growth, phoenix from the ashes and growth with high-income situations. Cooperman notes the importance of a market multiple in a slow-growth environment, and he assumes a reasonable valuation of the market to be around 15 to 16 times earnings for the S&P 500 index.
Lets take a look at Coopermans ten picks from last years Delivering Alpha conference:
Express Scripts. The Cool Valley, Missouribased pharmacy benefits manager buys back 10 percent of its equity annually, Cooperman said, while selling at a discount to the market at less than 15 times earnings. The stock hasnt moved much since last July and reported disappointing figures for the first quarter of 2014, with revenue and prescriptions filled down 9 and 18 percent, respectively.
Qualcomm. The only other holdover from the Omega founders 2012 favorites, semiconductor manufacturer Qualcomm was marked by excessive pessimism and operates with no debt and tens of billions in the safe, with substantial annual growth potential. In early July the San Diegobased company completed its acquisition of Wilocity, an Israeli start-up in which it had previously invested that builds microchips for next-gen Wi-Fi networks.
Thermo Fisher Scientific. The Waltham, Massachusettsbased biotech company has grown consistently since Cooperman named it in his basket and has brought its market capitalization up from $34 billion to $47 billion. In February Thermo Fisher completed its acquisition of rival Life Technologies Corp. for $13.6 billion, furthering its share of the genetic sequencing market.
Phoenix from the Ashes
Qualicorp. The Brazilian insurer has delivered the best returns of any Cooperman pick, despite economic uncertainty in its home country. Cooperman noted this play was not exactly a turnaround, but rather a solid company well positioned for dividends and buybacks operating in a troubled Latin American environment.
SandRidge Energy. The oil and natural gas exploration company has brought hefty profits home to Oklahoma City through its drilling in Mississippi. Still, it hasnt quite reached the $10 share price Cooperman asserted it could hit, with the market ignoring expenditure reductions. On July 15 the company will pay a semiannual dividend of $3 per share on certain preferred stock.
Growth with High-Income Situations
Arbor Realty Trust. The first of three negative performers is real estate investment trust Arbor Realty Trust, which has fallen 3.62 percent, while the S&P REIT index has risen about as much over the same time period. The Uniondale, New Yorkbased company, which focuses on bridge and mezzanine loans for multifamily and commercial real estate, has paid out an annual dividend of around 7.5 percent.
Atlas Resource Partners. At first glance, the Pittsburgh-based oil and natural gas producer finds itself in the minority as a Cooperman underperformer, as its stock price has been volatile. But, as Cooperman noted, yields are important in this space: The master limited partnership is paying dividends with an annualized yield of more than 11 percent. Cooperman purchased additional shares in April, according to his firms last 13F filing with the Securities and Exchange Commission.
Chimera Investment Corp. The other REIT in the group, Chimera trades low but has been steady for Cooperman, who called the company an asset-value play. According to SEC filings, Omega has upped its stake by 4 million shares. The New Yorkbased company invests mostly in residential mortgage-backed securities and mortgage loans and in the past faced questions over delayed SEC filings and restated earnings. As with Atlas, the dividend yield, around 12 percent, has Coopermans attention.
KKR Financial Holdings. On December 16 KKR & Co. announced it would acquire affiliate KKR Financial Holdings in an all-stock merger that valued KFN at some $2.6 billion. The deal closed on April 30, and KFN shareholders received 0.51 shares of KKR stock per share of KFN, which valued the latter at $12.79, or about a third more than it closed at when the deal was announced.
THL Credit. The biggest loser of the Coopermans bunch is business development company THL Credit, a Boston-based high-yield credit manager specializing in mezzanine loans. The BDCs 10 percent dividend provides steady income, but performance has lagged other REITs.
Whereas Cooperman picked several big winners in Qualcomm, Qualicorp, SandRidge and Thermo Fisher, his overall performance was tempered by several significant laggards. Still, with an equally weighted portfolio, this basket of equities, save for KKR Financial Holdings, has returned 20.22 percent. This beat the broader S&P index, which, over the same period, returned 16.88 percent.
Although the straight stock performance falls somewhat in line with Omegas annualized returns, it should be noted that this basket does not represent anywhere near Coopermans full portfolio. Nor does the performance include earnings on dividends, which clearly played a large role in Coopermans picks and would certainly vault him past the index performance.
When Cooperman took the stage last July, he did so on the heels of a 30 percent return from his 2012 basket of stocks. Perhaps the relative underperformance of last years picks will motivate the prolific manager to really bring the heat this year, when he returns to the podium at New Yorks Pierre Hotel on July 16 for another go at the Best Ideas panel at the fourth annual Delivering Alpha conference. Hes got plenty of impressive company on stage with him and throughout the day. Check back at institutionalinvestor.com for ongoing coverage of the event.
|Delivering Alpha 2013: Leon Cooperman's Top Picks|
|Arbor Realty Trust||ABR||$7.18||$6.90||-3.90%||$345.94M|
|Atlas Resource Partners||ARP||22.30||20.07||-10||1.35B|
|KKR Financial Holdings||KFN||11.05||N/A||N/A||5.63B|
|Qualicorp||QUAIF||15.51 reais||26.80 reais||72.79||7.14B reais|
|Thermo Fisher Scientific||TMO||87.79||117.15||33.44||46.74B|
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