Leon Cooperman: Long Charming Shoppes, KFN & ETFC ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Leon Cooperman of Omega Advisors gave a presentation on going long Charming Shoppes (CHRS), KKR Financial (KFN), and E*Trade Financial (ETFC).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Long Various Equities

Cooperman previously worked at Goldman Sachs for 25 years and made money in bottom-up stockpicking even when the market did nothing during the first 10 years of his career. He points out that currently everything in the markets is correlated and eventually this will change in time.

He agrees with Marc Lasry that we'll see low growth (1% GDP) and no double-dip recession. In order to dent unemployment, he argues we need to see 3% GDP growth.

Regarding the markets, Cooperman says that "people are light risk and that was why October was up so strong." He believes the market is discounting very conservative set of expectations and that the ECB will do what it takes to solve the Euro crisis. He believes there is no chance of a repeat of 2008.

Cooperman continues to preach that stocks are the best house in the neighborhood. This is the same message he presented at the Value Investing Congress. In particular, he likes three names:

Charming Shoppes (CHRS) - He likes the Layne Bryant division which services a niche of large women's apparel. He thinks the division is worth $700 million while the company has $227 million in cash and $140 million in debt and says it's probably worth 2x.

KKR Financial (KFN) - He likes the debt management arm of KKR as the 9% dividend is 2x covered by earnings. You get a 5-6% return plus the 9% dividend he says.

E*Trade Financial (ETFC) - He continues to like the improvement in the company's mortgage portfolio after their horrible foray into the market went so poorly years ago.

Additionally, Cooperman mentioned he likes the following stocks as well: Apple (AAPL), Boston Scientific (BSX), SLM (SLM), and Energy XXI (EXXI). For more from this manager, head to Cooperman's presentation from the Value Investing Congress here.


You can view full notes from Invest For Kids Chicago here.

Leon Cooperman's Value Investing Congress Presentation

At day two of the Value Investing Congress, Leon Cooperman of hedge fund Omega Advisors gave the case for going long Apple (AAPL) and E*Trade (ETFC) in a presentation entitled "The Investment Outlook & Some Attractive Values."

Be sure to check out all of our notes from the Value Investing Congress.


Leon Cooperman (Omega Advisors)

Embedded below is the full slideshow presentation from Cooperman:




"Like it or not, we've entered a world of risk-on risk-off macro world." Four conclusions that require four assumptions:

1. Assume US will avoid recession; remain slow growth at worst: Metrics suggest we are not on a recession track. Bank lending improving, consumer savings rate up to 4% from 1%, debt service ratio good. Not a “feel good” environment, with 9% unemployment, 10% only part-time. “I take very strong exception to the idea that 2011 is another 2008.” Corporate America most cash on balance sheets since 1955. Oil drop from 115 to 80.

2. Assume that Eurozone will effectively ring-fence Greek sovereign debt issues: “We expect sane policies to prevail, since there is no choice.” His view, based on 45 years of experience, is when the problem is so catastrophic, and expected to occur, it doesn’t occur. He thinks they’ll follow the US banking model, raise capital, shed noncore assets, delever.

3. Assumption that failed, Obama would come to the center: He says it’s not happening. Old expression: “When the President is in trouble, the market is in trouble.” He rants against Obama- says he only wants to tax the wealthy, debase the dollar, borrow from the world to create a welfare state.

4. Assume the Middle East settles down, oil prices stay reasonable: At 1100, the SPX had already discounted a mild recession that was not happening. He says stocks are compelling valuations here. Says market dropped 20%, a traditional recession market correction is 25%. Thinks the recent lows of 1100 are the downside for the cycle. Requires two of the top 4 assumptions.

Even if we did have a recession, SPX eps usually only drops 15-20%, so even if they did drop, he says 14 times trough earnings to be very compelling. He still expects SPX eps of $100 or more in 2012. Still in early stages of an economic recovery.

Valuation: Stocks are cheap relative to history, inflation, and interest rates. Last 50 years, SPX ave P/E was 15x. Now multiple is 11.6x, with only 2% interest rates vs. 6.6% average. Highest ERP in 20 years. Average bear market bottom the P/E was 12x, where we are now. Just had one of the worst 10 year return years in history, believes will mean revert. Corporate bonds are nowhere near where they were in 2008/9, down 70% in yield, yet SPX is 2 multiples lower than it was back then. He is starting to buy corporate bonds with 9% yields. 45% of the SPX stocks now pay higher yields than 10-year treasury bonds- same high level as 2009, we haven’t seen this in 50 years.

Avoid treasuries: Says 10-year bonds historically yield same as nominal GDP. Says if you believe we get 2% growth, plus 2-3% inflation, that’s 4-5% yield, and bonds will lose a lot of money. Still predicts low growth for next decade: 2-2.5% GDP, 2-2.5% inflation, 4-5% nominal GDP, stocks make 7-9%, treasuries negative return.

“You don’t have to have a strongly rising stock market to make a lot of money.” 1967 Dow was 1000, 10 years later, 1982, the Dow was 1000. Over time, there is ample opportunity to find things that are mispriced to the market. (They had EP yesterday as a 2% position before the buyout).

He’s 78% net long, says things look very cheap. With a little patience, can make a great deal of money.


Top Ten Long Ideas:

Apple (AAPL): Less than 10x multiple net of cash. Succession clear. Financial policies somewhat destructive, sitting on $80B in cash, but that may change.

Boston Scientific (BSX): 20% FCF yield

Qualcomm (QCOM): 16% grower trading for 12x

Sallie Mae (SLM)

ACE (ACE)

Transocean (RIG): Says deep water drilling cycle is turning. 6.5% yield, well covered dividend, day rate is improving. Says stock is discounting $5-10B, but will settle for $1-2B

Exxon Mobil (XOM)

KKR (KKR): Dividend paying stock, but get K1, getting 9% yield, and expects growth.

Energy XXI (EXXI)

E*Trade Financial (ETFC): Ken Griffin involved, TD Ameritrade (AMTD) could buy them. Mortgage losses over, even with no deal, management is on the right track.


For more from the Omega Advisors manager, head to Cooperman's thoughts from Delivering Alpha.


Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.

Omega Advisors' Leon Cooperman Likes Apple, Boston Scientific, KKR Financial, & Sallie Mae

At the Delivering Alpha conference, hedge fund founder Leon Cooperman of $6 billion Omega Advisors sat down with Maria Bartiromo to talk about the markets and what stocks he likes.

While Cooperman feels the market will be higher by the end of the year, he said that on a short-term tactical approach, he's found that hedge funds have low exposure. We've highlighted this as Dan Loeb's Third Point had reduced exposure for four consecutive months.

Cooperman thinks the fact that investors are underinvested could be a catalyst as money flows back into stocks and his focus is on a nine to twelve month timeframe. As to where the hedge fund manager is seeing value, he points to:

- Apple (AAPL): He says you can buy it at 10x next year's earnings.

- Boston Scientific (BSX): It generates over $1 per share in free cashflow annually (a 15% free cashflow yield) as the company looks to use that cash to buyback 10% of the company.

- KKR Financial (KFN): The stock yields over 9%, sells at a discount to book value, and the dividend is covered twice by earnings. He expects the yield to even go higher.

- Sallie Mae (SLM): Cooperman says that the $13 stock will earn $1.90 next year and he says the assets are worth $19-20.


In order to be bullish on equities (which he is), Cooperman says you have to invest under four assumptions:

1. The US is not like Japan and we will have a growing economy

2. The ECB will step up for European financial institutions

3. The President softens his anti-wealth, anti-business stance

4. Stability in the Middle East


Embedded below is the video of Leon Cooperman's interview from the Delivering Alpha conference:



We also detailed Leon Cooperman's appearance on the hedge fund best ideas panel at the conference as well. He will also be presenting his latest investment ideas at the Value Investing Congress.

Hedge Fund Best Ideas: Kyle Bass, Dan Loeb, Leon Cooperman, Phil Falcone

All today we've been covering the Delivering Alpha conference and we conclude with the Best Ideas & Alpha panel featuring Kyle Bass (Hayman Capital), Leon Cooperman (Omega Advisors), Philip Falcone (Harbinger Capital), Dan Loeb (Third Point), J. Tomilson Hill (Blackstone Alternative), and Anne Popkin (Symphony Asset Management). Each presented their best current idea:

Kyle Bass (Hayman Advisors)

Bass is well known for his subprime short and prediction of sovereign defaults. At the conference, he said that the sovereign debt crisis is unlike anything seen in history.

Bass believes Japan is in the worst position, saying "Japan spends almost half of their revenue on debt service. So, a minute move can put them literally into check-mate ... We see a structural anomaly creating the cheapest option in the world."

Simply put, Bass says to buy price put options on government bonds in Japan. He believes it's the best opportunity in the world. In the past, we've outlined how Bass was betting against Japanese Government Bonds (JGBs).


Leon Cooperman (Omega Advisors)

Earlier this summer, the legendary hedge fund manager presented at the Leaders in Investing Summit where he was concerned about employment and thought that bonds were screaming to be shorted. At today's conference, Cooperman says that the economic and financial crisis from 2008 would not repeat in 2011 or 2012.

The manager continues to avoid government bonds and again says that stocks are the "best house in the asset management neighborhood." He likes stocks assuming that Obama softens his 'anti-wealth' stance and that the Middle East remains stable. He mentioned liking Apple (AAPL), Sallie Mae (SLM), and Boston Scientific (BSX). To see what other stocks Cooperman is invested in, head to our Hedge Fund Wisdom newsletter.

Cooperman will also be presenting his latest investment ideas at the Value Investing Congress next month.


Philip Falcone (Harbinger Capital)

Falcone has seen somewhat of a transformation lately as his hedge fund looks more like a private equity fund with his large private investment in a 4G wireless network: LightSquared. At the conference, he pitched Spectrum Brands (SPB), noting the company's solid balance sheet and high free cashflow (11-12% free cashflow yield).

The company sells batteries, personal care products, home and garden items, and more. Falcone points to their strong management team and collection of strong global brands. The company is currently focused on debt paydown and reducing leverage from 3.5x to 3x.

Harbinger owns 28 million shares via his publicly-traded Harbinger Capital. We detailed Falcone's original acquisition of SPB shares back in August 2009 as well as his subsequent purchase in April of 2010. While SPB isn't a "high octane" stock, he likes it.


Dan Loeb (Third Point)

We've covered Loeb's recent activist investment in Yahoo! (YHOO) and that's exactly what he talked about at the conference. Just today he sent another letter to Yahoo as his first conversation didn't seem to go too well. Ahh, the trials and tribulations of activist investing.

He feels YHOO has an intrinsic value of around $20 per share and you can see Loeb's investment thesis in his original letter to Yahoo. But in summary, he feels that the company has great assets but has been horribly mismanaged. Calling the board of directors "clowns," Loeb points out that the company hasn't changed since 2004, has kept a "crappy interface" and the "same stupid logo."

In particular, it seems that Loeb really likes their ownership stake in Alibaba Group. Interestingly enough, Loeb says that the company does not need to break up. He says they've hedged the position against the S&P 500 and they've also hedged exposure to Yahoo Japan.

We've also detailed how Third Point has reduced equity exposure for four consecutive months.


J. Tomilson Hill (Blackstone Alternative Asset Mgmt)

This manager believes that non-performing loans and mortgage-backed securities are the best play on a risk-adjusted basis. He also says that, "you have the ability to buy mortgage servicing rights at prices we've not seen before."


Anne Popkin (Symphony Asset Management)

She argued that levered credit is cheap and is focused on loans and high yield bonds. The manager cautioned not to put all your eggs into this one basket and not to buy an entire position right away. Popkin says, "risk management is absolutely crucial here, because volatility is very high." So it sounds as if she's used the volatility in the sector to slowly assemble a position.


Embedded below is video of the entire Best Ideas & Alpha hedge fund panel:




For more coverage of the Delivering Alpha conference, head to our posts:

- Bill Ackman's new investment: long Hong Kong Dollar

- China: Bubble or Bonanza? Dan Arbess versus Jim Chanos

- Paul Touradji & Jeff Scott on commodities

- Jim Chanos: long corruption, short property in China

Leon Cooperman Optimistic About Equities, Concerned About Employment

Legendary investor Leon Cooperman of Omega Advisors recently appeared on CNBC to give his take on the markets. The hedge fund manager oversees $6 billion and founded his firm after working at Goldman Sachs for 25 years.

Omega Advisors is currently optimistic and argues that the United States is not akin to Japan and won't see a lost decade. Cooperman highlights that while the consensus view is optimistic, many people aren't invested that way. He points to outflows in the equity market and inflows to the bond market as people seek stability after a tumultuous ride through the financial crisis.

Omega Advisors is currently 80% net long. This is much more long-oriented than the average hedge fund exposure levels. Cooperman is now the second subsequent major hedge fund manager to come out and say that he's optimistic on the markets. Appaloosa Management's David Tepper is also optimistic.


Cooperman Sees New Economic Expansion

Cooperman says that, "We're eighteen months into a new economic expansion. The average economic expansion has lasted five years. There's still plenty of runway." Now while he is optimistic regarding the future, he obviously acknowledges that things don't go straight up and he could see a potential market correction in February. However, after that, he is optimistic over the long haul provided we see improvement in unemployment numbers.

Hedge Fund Manager Prefers Equities Over Bonds

Cooperman says that, "stocks, at worst, are the best house in a bad neighborhood and if by some miracle this whole game works and we deal with fiscal issues long-term and stop kicking the can down the road, then I think stocks are the best house in a good neighborhood."

Below is the video of Cooperman's thoughts on equities and email readers will need to come to the site to view it:




Cooperman Likes Energy and Financials

Cooperman rattled off a few energy names he owns including Denbury Resources (DNR), Williams Companies (WMB), and McMoRan Exploration (MMR). Just last week we highlighted that Barry Rosenstein's hedge fund JANA Partners bought WMB as well.

In the financial sector, he likes Sallie Mae (SLM), JP Morgan (JPM), and singles out E*Trade Financial (ETFC) as a potential takeover target. The hedge fund manager also likes Teva Pharmaceutical (TEVA) which has a 20% return on equity and is a growth business trading at 11x earnings. Lastly, he mentions that he's long General Motors (GM) and Ford (F) too, as there's a lot of positive operating leverage there.

Embedded below is the video of Cooperman's thoughts on specific sectors:



And here is the final video with Cooperman's expanded comments:




Omega Buys Energy XXI Shares

Additionally, Omega Advisors just filed a disclosure of recent activity in UK markets regarding their purchase of shares in Energy XXI (LON: EXXS). Per the notification, Omega Advisors has disclosed a 5.9% ownership stake in Energy XXI with 4,062,380 shares. This is due to portfolio activity as of December 31st, 2010.

While Cooperman has purchased the EXXS shares traded in the UK, shares of Energy XXI are also traded on the Nasdaq under ticker symbol EXXI as well. Per Google Finance, Energy XXI "is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico."

To view Cooperman's latest investments, subscribe to our Hedge Fund Wisdom newsletter as we'll reveal his portfolio in our new issue that comes out soon.