At Wednesday’s Delivering Alpha conference sponsored by CNBC and Institutional Investor, Leon Cooperman of Omega Advisors was asked to share his “Best Idea” alongside several other top investors. Cooperman opted to list ten stock picks, with the bonus advice not to invest in U.S. treasuries as they offer too little return and a substantial downside if interest rates rise. He is generally bullish on equities, even if the economy grows at a low rate, simply because he sees stocks as historically cheap. His picks were Qualcomm, Halliburton, Kinder Morgan, Capital One, Watson Pharmaceuticals, Gannett, AIA Group, Express Scripts, Metlife, and Western Union. Of these ten, here are the five in which Omega had the biggest position at the end of March (see the rest of the stocks it owned):
Qualcomm (NASDAQ:QCOM): This nearly $100 billion market cap digital telecommunications company reported 28% revenue growth in its most recent quarter and more than doubled its revenue compared to the same quarter in the previous year, yet its trailing P/E ratio is just over 17- lower than might be expected for a growth company. So far this year, the stock lags the NASDAQ with a return of about 5%, and it is down 15% since March 31 (when Cooperman reported owning 1.9 million shares). A small plus for Cooperman and other investors is that the stock pays a small dividend yield of 1.8%. QCOM was also one of hedge funds’ 10 favorite tech stocks.
Metlife (NYSE:MET): Metlife’s price-to-earnings and EV/EBITDA ratios of less than 6, despite being a $33 billion market cap company, make it stand out from a value investing perspective. Revenue and net income from 2009 through 2011 were also on a sharp upward trend. Cooperman may also be attracted to the 2.4% dividend yield that the company pays. However, investors should be wary of the life insurance company’s history of overexaggerating market moves (it has a beta of 1.92); if the market falls contrary to Cooperman’s thesis, then the stock could plunge to even lower levels. It may work better as a long-term investment.
Halliburton (NYSE:HAL): Cooperman is in good company with this pick, as Halliburton was one of the ten most popular energy stocks among hedge funds. The large-cap energy services company stands to benefit from the growth of shale energy in the United States, as the process of drilling and hydraulic fracturing in these oil and gas fields generates high demand for the company’s services. Like many of Cooperman’s picks, it pays a small dividend of 1.2%, similar to short-term Treasuries. Investors should be warned that the stock is sharply down over the last 12 months, much more so than oil prices.
Kinder Morgan (NYSE:KMI): Kinder Morgan is priced for growth, with its forward price-to-earnings ratio at 26, but its network of pipelines is growing as new oil and gas fields across the United States develop and energy production companies look for ways to transport products to market. A high dividend yield of 3.7%- the company has been increasing its dividends in the last year- offers solid cash returns to an investor’s portfolio. However, it is difficult to see why a stock at such a high multiple has a low chance of falling further, particularly if oil prices- which the company had been tied to until outperforming recently- drop in response to low growth.
Western Union (NYSE:WU): Western Union is easy to see as a value investment. The stock trades at a P/E ratio of less than 9 despite delivering good growth in the first quarter of the year and paying a 2.4% dividend yield, well above short-term U.S. government bonds; given Cooperman’s thesis that equity prices cannot go much lower, this looks to be a good fit in his portfolio. Investors would be advised that the stock is down 8-9% year to date as the money transfer business appears threatened by a global slowdown.