Leon Cooperman Finds A New Mega-Cap Lover in Google Inc (GOOGL)

In an interview on Bloomberg, Leon Cooperman claimed to have added a major (or rather mega, as in cap) new entrant to his fund Omega Advisors’ equity portfolio, which was headed by Actavis plc (NYSE:ACT), Citigroup Inc (NYSE:C), and Comcast Corporation (NASDAQ:CMCSK) at the end of 2014. Cooperman has added Google Inc (NASDAQ:GOOGL) to his fund’s portfolio, mainly driven by its strong cash position amounting to some $60 billion. The seasoned money manager believes that the Mountainview, California-based tech giant’s management ought to take steps to increase shareholder value soon, especially when a lot of Google Inc (NASDAQ:GOOGL)’s own employees own the stock and would like to see their wealth grow.

Groupon, Alibaba, is GRPN a good stock to buy, is BABA a good stock to buy, Leon Cooperman, Omega Advisors,

Taking a step back, this brings us to the issue of how profitable such large-cap bets of hedge funds are. Historically, this category has produced very little alpha for these investment firms, the main reason being the multitude of analysts covering these companies, which leads to their shares being efficiently priced in the market. On the other hand, hedge funds generate much greater alpha from their small-cap investments. The real gems of this under-researched market-cap space are often selling at discounts to their true market valuation and future prospects. Firms like Omega Advisors invest tons of money to successfully unearth these gems. However, owing to the large amount of capital at hedge funds’ disposal, not all the money can flow into these small-caps so bigger counterparts such as Google Inc (NASDAQ:GOOGL) are ushered in to fill the gap.

Let us dig a little deeper into this. Through the research of Insider Monkey’s founder, Dr. Ian Dogan, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by 7 basis points per month during the same period. In forward tests from August 2012 through March 2015 these top small-cap stocks beat the market by a hefty 79.4 percentage points (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the prevalent arbitrage opportunities in the market by concentrating on these lesser-known  small-cap stocks.

Although up by a decent 3.88% year-to-date, Google Inc (NASDAQ:GOOGL)’s stock is up by a mere 5.97% over the last calendar year. In comparison, the S&P 500 ETF (SPY) has appreciated by nearly 3% year-to-date and 12.8% over the past year. Google’s first quarter financial results relieved many of its investors, who were fearing a worse outcome. This was mainly driven by Google Inc (NASDAQ:GOOGL)’s less than expected spending and an improvement in profit margins, which consequently led to the company’s price target being hiked by quite a few analysts. Two other significant stockholders of the $373.22 billion tech giant are Boykin Curry‘s Eagle Capital Management and Ken Fisher‘s Fisher Asset Management.

Of the top three mega-caps held by Omega, Actavis plc (NYSE:ACT) has been the best performer this year so far with the stock gaining some 13% year-to-date. The company is also Omega’s largest equity holding, according to the fund’s latest filing, with about 934,600 shares valued at $242.89 million. Healthcare has been a high performing sector this year so far with a rise of 10.74% year-to-date, according to Morningstar data. Actavis plc (NYSE:ACT) is also found in the equity portfolio of  Dan Loeb‘s Third Point.

Moving on to the disappointments in the mega-cap space we find Omega’s second largest equity holding, Citigroup Inc (NYSE:C), in which Omega holds 4.25 million shares valued at $229.72 million as of the end of 2014. The $162.42 billion financial services company has depreciated by 0.31% year-to-date. Fines have cut into the company’s profitability. In total these punitive damages amount to $12.8 billion since the 2007 financial crisis. Ken Griffin is another fund manger betting on Citigroup Inc (NYSE:C), as he held some 10.46 million shares of the company in the portfolio of his fund, Citadel Investment Group.

Lastly, Omega’s holding in Comcast Corporation (NASDAQ:CMCSK) amounting to 1.78 million shares valued at $102.41 million has been anything but a high performer. The company’s stock has appreciated by just 0.57% year-to-date, which is rather disappointing given the S&P 500 ETF (SPY)’s returns during the same period. Comcast Corporation (NASDAQ:CMCSK) faced a set back recently as its merger with Time Warner Cable Inc (NYSE:TWC) failed to materialize after after more than a year of working through the deal’s difficult regulatory landscape. Paul Ruddock and Steve Heinz’s Lansdowne Partners held 24.77 million shares of Comcast Corporation (NASDAQ:CMCSK) at the end of the fourth quarter.

Disclosure: None