I listened to Leon Cooperman’s talk at an event hosted by the New York Alternative Investment Roundtable. There were a few members of the media present at the event and they decided that the most interesting part of Cooperman’s talk was his comments regarding the private equity industry. “I think it’s a scam personally” Cooperman said.
“The biggest factor in the success of the private equity in the last decade is the enormous decline in interest rates. That made the exit multiple much higher than the entry multiple. Anybody betting on lower interest rates from here is betting on depression. The odds are very high the interest rates will be going up over the next 5 to 10 years” Cooperman added.
Obviously I didn’t attend this event to report on Cooperman’s private equity comments. I am interested in Cooperman’s market view as well as his best investment ideas. He has been consistently betting on a bull market over the last 10 years and I don’t think he predicted a recession or a bear market at any point over the last 10 years. So, Cooperman is a very reliable recession indicator in my opinion.
Cooperman estimates that S&P 500 constituents will earn $168 this year and he puts a 17 multiple on that to reach 2890 for the S&P 500 Index. “I think the market is fairly valued. Not overvalued, not undervalued,” he said. He doesn’t think it is appropriate to use a higher multiple because of the ultra-low interest rate environment. He said he was very surprised how abruptly the economy slowed down during the fourth quarter of 2018 “in the face of very small interest rate increase”. This tells him that there is a corporate debt problem and it is getting worse, not better. “We have record high margins and margins tend to mean revert,” Cooperman added.
Cooperman didn’t elaborate on this but it is clearly not a good idea to invest in highly leveraged companies or long-term bond ETFs like iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) going forward.
In the current environment Cooperman doesn’t see any alternatives to stocks. He dropped the name of his favorite cheap stock during the talk. He said this stock is trading at only 2 times its 2022 earnings. I will do an in-depth analysis of this stock in the coming issue of our monthly newsletter to see under what assumptions Cooperman sees this stock trading at 2 times earnings. If that’s indeed the case, it can easily be an easy triple from today’s price. Right now we have a promotion going on. You can subscribe to both of our newsletters for only $349/year, a discount of $200. This is the lowest price of the year.
The second stock Cooperman talked about was Cigna Corporation (NYSE:CI). “I had breakfast yesterday with the CEO of Cigna. The stock is 8 times earnings, buying back 2-3% annually and growing earnings” he said about Cigna. Cigna was the fifth largest position in Omega Advisors’ 13F portfolio at the end of June.
The third stock Cooperman raved about was United Airlines Holdings Inc. (NASDAQ:UAL), saying that United Airlines retired 14% of its stock during the last 4 years, earning $12 and trading at only 7 times earnings. United Airlines was the third largest position in Omega’s 13F portfolio.
After the event concluded one of the guests asked him about Alphabet Inc. (NASDAQ:GOOGL) because it is under regulatory scrutiny. Cooperman told him that it is great buying opportunity. Cooperman told him that the government tried to break up Microsoft Corporation (NASDAQ:MSFT) 20 years ago and the stock declined 20% initially but that proved to be a great buying opportunity as the stock went on to return 900% since then. Alphabet Inc (NASDAQ:GOOGL) is the second largest position in Omega’s 13F portfolio. Alphabet is also extremely popular among hedge funds, being one of the 5 most popular stocks (see the 30 most popular hedge fund stocks).
Before Cooperman left the event I asked him about a stock we recently recommended in our monthly newsletter. I am not going to name the stock because it wouldn’t be fair our premium subscribers. Cooperman didn’t have any shares of this stock in his 13F portfolio at the end of June, but he told me that he now has a small position. This means he bought this stock in the last couple of months.
By becoming a subscriber, you can also find out the name of this cheap growth stock.
To summarize, Cooperman thinks the stock market is the only game in town and it is fairly valued. There are a few very cheap stocks that investors can buy. He expects interest rates to go up from these levels, meaning that long-term bond investors will probably see negative returns.
Disclosure: None. This article was originally published at Insider Monkey.
