Steve Einhorn - Omega Advisors Interview on Boyar Podcast

Steve Einhorn of Omega Advisors was recently interviewed on The World According to Boyar Podcast.  Einhorn has been Lee Cooperman's longtime partner at the firm, which recently converted into a family office.


Steve Einhorn Interview on Boyar Podcast

-  Omega runs long/short, primarily in the US with average exposure in developed economies.  Would prefer 15% lumpy return than a 8% non-lumpy return.

- They also spend a lot of time on macro thinking and strategy to combine with their equity research.  They assess a number of factors: economic activity, earnings growth, monetary/fiscal policies, valuation, supply and demand, etc.

-  This helps them determine what exposure they want in the portfolio.  If they're constructive overall, they're willing to take more stock specific risk.  They're bottom-up stock pickers, but if a macro outlook leans certain ways, they can look to take more exposure to a certain sector.  They'll also sell options premium in certain instances.

- On position sizing: they first look at liquidity as they don't want to be so large in a name that they can't get out without disturbing the market.  The second is the risk/reward associated with a given name.  A large long for them is 3-5% of assets and large short would be 1-2%.

-  They'll exit a stock if it meets their stock price target and upside is diminished, or if they were simply wrong on their assessment of fundamentals, or if there's another stock in the sector that's more attractive.

-  Currently he likes the tech sector (software) due to rapid growth in revenue and cashflow.  They see moats around many of these names allowing them to keep pricing flexibility.  They think global growth will be less than it has been historically, and in this environment they want to be invested in growth names, as tech names are often independent of the business cycle.  Not to mention, the multiples they're paying is not excessive in their view.

- Another sector they like is industrials as a synchronized global economic expansion will benefit some of these companies.  They like the position in the cycle.  They also like financials, feels they're cheap relative to tangible book and can see high dividend growth.  In the energy sector, oil prices have ramped up, but some of those stocks haven't reflected that.

- They're not interested in utilities or telecom names, anything interest rate sensitive.  Consumer staples is another area that "looks expensive to them on a multiple basis relative to underlying growth prospects."


Steve Einhorn's Bear Market Checklist

Five items are almost always present at the end of a US bull market and the start of a bear market.  The five are:

1)  Problematic inflation:  if wage inflation is around 3.5% it's a problem (it's currently well below that).  Also watch core consumer prices (you'd need to see consumer inflation in excess of 2.25%)

2)  A hostile Federal Reserve:  raising rates well above the neutral rate of 2.5-3% causes a hostile Fed (currently below that).  Thinks they'll gradually lift rates.

3)  Prospect of recession: "virtually nothing we look at shows the economy in the US is prone to a recession anytime soon."

4)  Investor sentiment:  climbing a wall of worry.  Currently doesn't think it's excessive or speculative.

5)  Valuation: When it becomes extended relative to interest rates and inflation.  Current multiples aren't extended in relation to interest rates.  Modestly above long-term average.


- Sees forward equity returns of 7-9%.  "Bull markets don't die of old age, they die because they are murdered by the Federal Reserve.  Our Federal Reserve is not in a murderous mentality given tame inflation and moderate economic growth."


For other recent podcasts, we've also previously highlighted Boyar's interview with Chris Mayer, the author of 100 Baggers.

Embedded below is the podcast audio of Boyar's interview with Steve Einhorn:



Email readers:  Click here to listen

If you missed it, we also posted up complimentary equity research from Boyar on Charter Communications (CHTR), Franklin Resources (BEN), and SunOpta (STKL). 

Steve Einhorn on Wall Street Week: "More Years" Left In Bull Market

Anthony Scaramucci and Gary Kaminsky's Wall Street Week this time around featured Steve Einhorn of Omega Advisors.  While many people will be more familiar with Omega's founder Lee Cooperman due to his numerous public appearances, Einhorn is an integral part of the team as well.

In his interview, Einhorn commented that Omega feels that there's still "quite a while to go" in this bull market.  While many investors anticipate markets to get choppy once rates start rising, Omega has taken a different stance.

He thinks that the situation in Greece and the timing of the rate rise aren't that important in the grand scheme of things.  He notes, "the fundamentals that largely determine how the stock market does are quite good, and partly overlooked by investors."

Embedded below is the video of Steve Einhorn's appearance on Wall Street Week (his portion starts at 18:34):



For more from Omega Advisors, we recently highlighted Lee Cooperman's latest interview.

For more from the show, be sure to check out Byron Wien's Wall Street Week interview as well.

Lee Cooperman's Thesis on Covidien & Sirius XM Radio: Omega Advisors Q1 Letter

Lee Cooperman's hedge fund Omega Advisors' Overseas Partners returned 10.9% in the first quarter of 2013 and has seen annualized returns of 16.6% since inception.  We wanted to post an excerpt from Omega's Q1 letter highlighting Cooperman's thesis on Covidien (COV) and Sirius XM Radio (SIRI).


Covidien (COV): A Spin-Off Play

Cooperman likes Covidien because the company is spinning off a lower margin, lower growth business, Mallinckrodt (MNK).  He fancies the standalone COV business afterwards and writes about the spinoff:

"First, it will enable MNK to invest more appropriately in maximizing a number of underappreciated  opportunities in its pharma pipeline, while pruning assets with sub-optimal growth characteristics. Second, by  divesting itself of the lower margin and lower growth MNK businesses, stand-alone COV, which operates in  attractive medical device and supply segments with favorable competitive dynamics and end-market growth,  will drive margin expansion that should translate into a higher multiple in-line with its comparables. We further  expect COV to pursue actions, including cost reductions and capital deployment (noting the recently  announced $3-billion share-repurchase authorization on top of the $425m outstanding on its previous  authorization) to offset the transitory transaction-related tax and other dis-synergies from the spin, thus driving  upside to consensus pro forma estimates. We estimate new COV will generate EPS of $4.58 in FY14 and $5.13  in FY15, while MNK will generate $0.41 in FY14 and $0.48 in FY15, above pro-forma street estimates. Using  conservative target P/E multiples, our sum-of-the-parts valuation implies 25% upside over the next 12 months  against limited downside given the current discount multiple to peers, creating an attractive risk/reward in the  stock approaching the mid-year spin-off of MNK that is likely to act as a catalyst for the shares."

COV has been largely favored by 'vanilla' managers such as mutual funds and index funds.  Looking at the top holders, there weren't many hedge funds involved as of the end of Q1 but that could have changed since then due to the impending spin-off.


Omega's Thesis on Sirius XM (SIRI)

Cooperman's fund has held a SIRI position for a while, but continues to like the name because the company has a ton of subscribers and has negotiating leverage when acquiring exclusive content.  Omega has identified four growth drivers for Sirius XM:

"First, SIRI can be more proactive in  addressing the used-car market and converting people who have the hardware in the car into paying subscribers  at little to no cost. Second, a rising SAAR lends itself to higher additions from new-car sales. Third, current  estimates of almost 100-million cars with SIRI preinstalled by 2017 points to massive potential over the next  few years compared with the current installed base. And fourth, the price hike announced in 2011 and  implemented over the last year demonstrates significant pricing power embedded in this model. We believe  that the best way to value SIRI is on a free-cash-flow per share metric as the company has over $7 billion in  gross NOLs, is buying back shares aggressively, and at these levels the amount of NOL per share increases via  the buyback. Therefore, the more aggressive SIRI is, the longer the NOL lasts per share...to the point where, in  our models, if the stock stays at $3.00 per share, it is possible to buy back the entire company before the NOL  runs out. We think downside is limited and see significant potential in the years ahead for SIRI, with a price  objective of $5 using a low-teen multiple of 2015 cash flow."

SIRI has been a favorite play among many hedge funds.  While Omega Advisors is one of the top institutional holders of SIRI, other hedge funds involved as of the end of Q1 include: Blue Ridge Capital, Coatue Management, Slate Path Capital, and Hound Partners.

Not to mention, John Malone's Liberty Media (LMCA) has amassed quite a sizable stake in SIRI


Omega Looking At Infrastructure Plays Too

Cooperman and his colleague Steve Einhorn point out in their Q1 letter that infrastructure-related investments should do well going forward and they've been searching for potential investments as they see a quest for energy independence and a manufacturing renaissance as catalysts.

For more from this hedge fund manager, we recently highlighted Omega's new position in PennyMac Financial Services and also flagged  Cooperman's market thoughts from the SALT Conference.