A Look at Billionaire Leon Cooperman’s Five Cheapest Stock Picks

Leon Cooperman has exactly two months left to avoid registering losses for the second straight year. Omega Advisors, the hedge fund founded by Cooperman back in 1991, had lost 7.6% from the beginning of the year through October 16, after suffering a loss of 2.1% in 2014. Even so, Omega Advisors has delivered a cumulative return of 1,536% since its inception, compared to 689% delivered by the S&P 500 over the same time span. This yields an annualized return of 12.5% for the hedge fund, beating the 9.1% gains registered by the S&P 500.

Earlier this month, Omega Advisors conducted an investor conference call, where it reaffirmed its investment philosophy, and presented its performance, and top stock picks, among other things. Moving on to the underlying purpose of this article, we identified five cheap stocks in terms of forward P/E owned by Omega Advisors as of October 16. Even though the letter does not disclose the exact number of shares held by the hedge fund, it does reveal the portfolio composition of these positions.

We follow hedge funds like Omega Advisors because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 102%, outperforming the S&P 500 ETF by more than 53 percentage points (see more details here).

#5 Tribune Media Co (NYSE:TRCO)

Forward P/E Ratio 2016 (Omega Advisors’ Estimate): 7.3

Tribune Media Co (NYSE:TRCO) represents Omega Advisors’ 15th-largest position as of October 16, accounting for 1.9% of the hedge fund’s assets. Leon Cooperman’s investment firm owned 2.45 million shares in the media and entertainment company on June 30, which represented 2.09% of its portfolio, according to the 13F filing. The shares of the company have lost nearly 33% during the September quarter, and the forward P/E estimate is not alone in suggesting that the broadcaster is greatly undervalued at the moment. Ryan Fiftal, analyst at Morgan Stanley, has assigned Tribune Media a sum-of-the-parts value of $46.50 per share. The company is set to release its third-quarter earnings report on November 10 before the market opens, which will shed some light on its future course. Howard Marks’ Oaktree Capital Management owned 14.15 million shares of Tribune Media Co (NYSE:TRCO) at the end of the second quarter.

 #4 American International Group Inc. (NYSE:AIG)

Forward P/E Ratio 2016 (Omega Advisors’ Estimate): 7.2

American International Group Inc. (NYSE:AIG) made the list of Omega Advisors’ largest five holdings as of October 16, and represented roughly 2.6% of the firm’s assets. The hedge fund firm reported an ownership stake of 3.40 million shares in AIG through the 13F for the June quarter. The stock lost 7% during the third quarter, but is still 12% in the green year-to-date. Earlier this week, reputable activist investor Carl Icahn published a letter saying that AIG would greatly benefit from splitting its insurance businesses into three independent public companies: property and casualty insurance, mortgage and life insurance. John Paulson of Paulson & Co., who owns 14.60 million shares in American International Group Inc. (NYSE:AIG) as of June 30, reckons that AIG could trade at a price level above $100 per share should the company take this step.

#3 Chimera Investment Corporation (NYSE:CIM)

Forward P/E Ratio 2016 (Omega Advisors’ Estimate): 7.1

Omega Advisors held an ownership stake of 14.13 million shares in Chimera Investment Corporation (NYSE:CIM) at the end of June, which represented 3.09% of the hedge fund’s portfolio. The recently-disclosed investor letter reveals that Leon Cooperman’s stake in the company accounts for 2.3% of the firm’s assets, but these percentages are not comparable as they may take into account different values as numerators. The company has seen its stock decline 11% year-to-date, which currently trades at a P/E ratio of 7.1, significantly below the median of 18.41 for the S&P 500. The specialty financial company also pays out an annualized dividend of $1.92, providing a current annualized dividend yield of 13.52%. Israel Englander’s Millennium Management acquired a 4 million-share stake in Chimera Investment Corporation (NYSE:CIM) during the second quarter.

#2 AerCap Holdings N.V. (NYSE:AER)

Forward P/E Ratio 2016 (Omega Advisors’ Estimate): 6.3

AerCap Holdings N.V. (NYSE:AER) is the fourth-largest position of Leon Cooperman’s Omega Advisors as of October 16, accounting for 3.0% of its assets. This holding represented the second-largest holding of this hedge fund at the end the June quarter, but lost a few spots because of Cooperman’s new portfolio addition and his bullish move on Alphabet Inc. (NASDAQ:GOOGL). The aircraft leasing company revealed its third-quarter business transactions prior to disclosing its earnings report on November 10. The company signed lease agreements for 46 aircrafts, purchased seven aircrafts, and executed sale and part-out transactions for 17 aircrafts. However, it remains to see to what extent these deals assisted the company in delivering strong third-quarter financial results. Considering the stock’s forward P/E ratio of 6.3, one may claim that the shares of the aircraft leasing company are trading at a bargain price at the moment. Ken Griffin’s Citadel Investment Group owned 6.88 million shares of AerCap Holdings N.V. (NYSE:AER) at the end of June.

#1 Navient Corp (NASDAQ:NAVI)

Forward P/E Ratio 2016 (Estimate of Omega Advisors): 5.7

Navient Corp (NASDAQ:NAVI) represents the cheapest stock among Omega Advisors’ 25 stock picks disclosed in the aforementioned letter, as the investment firm assigned it a forward P/E ratio of 5.7 for 2016. This holding accounts for 1.8% of the hedge fund’s assets as of October 16. Let us remind you that Leon Cooperman’s firm reported owning 7.73 million shares in the loan management, servicing and asset recovery company through the 13F filing for the second quarter. Earlier today, the company announced a fourth-quarter dividend of $0.16 per share, which provides a current dividend yield of 4.64%. The shares of Navient declined 37% during the September quarter, but have advanced 23% since the beginning of the current quarter. Cliff Asness’ AQR Capital Management held 6.62 million shares of Navient Corp (NASDAQ:NAVI) on June 30.

Disclosure: None