Leon Cooperman Lawsuit: 5 Stocks That Will Get Crushed if Omega is Forced to Liquidate

Leon Cooperman‘s insider trading scandal is one of the most hot topics these days. The billionaire hedge fund manager is accused of having traded the Atlas Pipeline Partners stock using confidential corporate information he gained by virtue of his position as one of the company’s largest shareholders. According to the Securities and Exchange Commission, Cooperman earned approximately $4 million from these transactions.

This is the government’s first case against a high profile hedge fund manager since it brought charges against Steven Cohen‘s SAC Capital Advisors. Whether Cooperman will get a similar deal or will have to completely shut down his firm, investors are in for a bumpy ride. Not only investors of Omega Advisors might be affected, but also several stocks in which Cooperman owns positions significant enough in relation to their daily trading volume. Even if you’re not one of Omega Advisors’ investors, you could still be in trouble if you have the five stocks discussed in this article in your portfolio. Alternatively, it could prove a great opportunity to buy into these stocks on the dip.

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#5 HRG Group

First up is HRG Group Inc (NYSE:HRG), formerly known as Harbinger Group. According to its latest 13F filing, Cooperman’s Omega Advisors held 10.3 million shares worth $141.5 million at the end of June. To have an idea of the impact a fire sale would have on the stock, we have looked at the ratio between the value of Omega’s position and the dollar value of the stock’s average daily trading volume. Given that an average of $8.44 million worth of HRG Group Inc (NYSE:HRG) stock changes hands every day, Omega’s stake is approximately 16.76 times larger. According to our data, a little more than half of HRG Group’s common stock was held by 25 of the funds we follow, down from 29 registered a quarter before. Ian Cumming and Joseph Steinberg‘s Leucadia National held the largest stake in HRG among these funds: 46.6 million shares reportedly worth $639 million. This is by far the fund’s largest equity position, accounting of a whooping 74% of the portfolio. Although it suffered a correction in the beginning of the year, HRG Group Inc (NYSE:HRG) managed to regain the lost ground and seems to have cemented a place in green territory. Shares have ended Thursday’s trading session at $15.52 apiece, up 16% year-to-date.

#4 Ellington Financial

Ellington Financial LLC (NYSE:EFC) is another financial stock risking a knock out should Omega be forced to unwind its positions. The fund reportedly holds a $20.9 million stake, roughly 17.34 times the average daily volume. In general, Ellington Financial LLC (NYSE:EFC) is not a popular stock among the funds followed by Insider Monkey, with only five of them having disclosed a position in their latest regulatory filings, unchanged from the previous quarter. Mike Vranos’ Ellington Management Group is the manager of Ellington Financial and has a large exposure to this stock, as its stake accounts for 23% of its equity portfolio. At the end of June, Ellington reportedly held 978,613 shares valued at $16.7 million. Ellington Financial LLC (NYSE:EFC) has a market cap of $557 million and pays an annual dividend of $2.00 per share, providing investors with a 11.68% yield. During the 2016 second quarter, the company returned to profitability, after posting a $23.2 million net loss for the first quarter. Ellington reported $20 million in revenue and earnings of $0.15 per share, well below analysts’ estimates of $0.44 per share. “We believe that our high-yielding and growing loan portfolio, coupled with our securities portfolio offering not only yield but also the potential for trading gains, together represent a powerful combination for earnings potential,” commented Laurence Penn, Chief Executive Officer of Ellington Financial.

Turn the page to see which stocks have a higher chance of getting crushed if Omega loses this contest.

#3 PennyMac Financial

Omega Advisors also held a 11.2% stake in PennyMac Financial Services Inc (NYSE:PFSI) at the end of June. According to its most recent 13F filing, the fund held 2.47 million shares worth some $30.9 million. In this case, Leon Cooperman’s investment is 17.65 times larger than the stock’s average daily trading volume, which is estiamted at $1.75 million. Analysts at Citigroup have recently reiterated their ‘Buy’ rating on PennyMac Financial Services Inc (NYSE:PFSI) and have boosted their price target from $16 to $20 per share. Piper Jaffray is also optimistic about this stock, as the firm has restated its ‘Overweight’ rating and the $20 price target. Shares are currently up 16% for the year. At the end of June, roughly 33% of PennyMac Financial Services Inc (NYSE:PFSI) common stock was held by 12 of the funds in our database, unchanged over the second quarter. Richard Mashaal’s Rima Senvest Management also holds a sizable position, having indicated ownership of 2.05 million shares in its latest 13F filing.

#2 Loral Space & Communications

Loral Space & Communications Ltd. (NASDAQ:LORL), a satellite communications company, is also in danger of seeing its stock battered in case Omega goes under. At the end of the second quarter, the fund held a $61.2 million position, while he average daily trading volume is estimated at $2.05 million, resulting in a value-to-trading-volume ratio of 29.86. At the beginning of August, Loral Space & Communications Ltd. (NASDAQ:LORL) reported financial results for the second quarter. The company posted a net income of $32.6 million or $1.03 per share, up from $0.58 per share it reported for the same period of 2015. Despite the positive developments, the stock is still struggling to come back from the January selloff. Shares are currently trading around the $37.5 level, down by 6.6% for the year. The hedge fund sentiment towards Loral Space & Communications Ltd. (NASDAQ:LORL) cooled down a bit during the second quarter, as the number of long hedge fund positions fell to 23 from 25 at the end of March. James Dondero is one of the hedge fund managers keeping tabs on this stock, with his fund, Highland Capital Management, holding 2.12 million shares as of the end of June.

#1 Nordic American Offshore

Nordic American Offshore Ltd (NYSE:NAO), a company that operates platform supply vessels, faces the biggest danger of them all. According to its latest 13F filing, Omega held 1.6 million shares at the end of June, valued at approximately $7.53 million. The average daily trading volume of this stock in US dollars is $201,416, which means that Cooperman’s investment is 37.39 times larger and a fire sale could crush the stock. The hedge funds tracked by Insider Monkey are not very fond of Nordic American Offshore Ltd (NYSE:NAO). At the end of June, only five of them had this stock in their portfolio, unchanged from the end of March. Jim Simons‘ Renaissance Technologies had a small position that amounted to 194,600 shares worth $917,000 at the end of the quarter. Although its a rather small company, sporting a market cap of $76.4 million, Nordic American Offshore Ltd (NYSE:NAO) pays an annual dividend of $0.40 per share, which provides shareholders with a juicy 10.6% yield. The stock is currently trading close to all-time lows, as it has been in a downtrend since July 2014, dropping by roughly 82%. In the last three quarter, Nordic American Offshore has posted a string of disappointing results, failing to meet Wall Street’s earnings expectations. For the second quarter, the company reported a loss of $0.36 per share, while analysts had projected a loss of $0.19 per share. Revenue for the period fell 55% year-over-year to $5.07 million.

Disclosure: none.