Billionaire Leon Cooperman’s hedge fund, Omega Advisors, recently filed its 13F disclosure for the first quarter. Based on it, this market-beating hedge fund with $8.5 billion in assets under management presented a portfolio rich in energy stocks, several dividend-paying equities, and merger arbitrage/acquisition plays. In the quarter, the fund made 20 new picks and increased stakes in 30 positions, while it sold out of only 15 positions; learn why some investors piggyback hedge fund activity.
This long/short fund that applies macro and fundamental analyses is still in favor of equities, and its management sees a positive outlook for equities in the long run. However, according to a recent interview in Barron’s, while the fund’s management “does not say the bull market is over,” it “expect(s) the market to enter a prolonged consolidation, at around current levels.” The main reasons for this appear to be the market’s extended rally so far this year, driven by defensive noncyclical stocks, and slowing earnings growth. Still, given such a historically low yield on the 10-year Treasury, Cooperman thinks that stocks are “very, very cheap against the alternatives in financial assets.” Based on Omega Advisors’ first-quarter 13F disclosure, here is a review of the fund’s four new dividend-paying picks with yields exceeding 2%.
In the first quarter, Omega Advisors initiated a new position in a specialty chemicals (polypropylene and polyethylene) producer LyondellBasell Industries NV (NYSE:LYB). This Dutch-based company came out of its bankruptcy restructuring in April 2010, and since has had a stellar performance, as its profits climbed to a new record last year and the company joined the S&P 500 index and received an investment grade rating from Moody’s Investor Services. As an investment, LyondellBasell Industries NV (NYSE:LYB) has both value and growth characteristics. Moreover, it boasts a good income potential as its cash flow is projected to improve notably in the future. We like the stock’s valuation, as LyondellBasell Industries NV (NYSE:LYB) is trading at 9.2x forward earnings and at a price-to-sales of only 0.9. Given its pro-cyclical nature, the stock stands to benefit from the cyclical rebound in the global economies, in addition to the impetus received from the U.S. shale oil and natural gas boom.
We also like the company’s growth potential, as it will be propelled by a $1.6 billion of growth capex over the next three years, which should lead to some $1.5 billion annually in additional EBITDA at 2012 margins by 2017, according to the company’s projections. Mushrooming discretionary cash flow—to the tune of between $2.0 billion and $3.5 billion annually—is likely to translate into more special dividends and share buybacks. In fact, the company recently announced a 25% dividend hike and a rich stock repurchase plan (read more about it here). LyondellBasell Industries NV (NYSE:LYB)’s forward yield is 3% on a payout ratio of 33% of the current-year EPS estimate.