We recently compiled a list of the Billionaire Lee Cooperman Says The Market Is Expensive But These 10 Stocks Are Cheap. In this article, we are going to take a look at where Mr. Cooper Group Inc. (NASDAQ:COOP) stands against the other cheap stocks.
Leon Cooperman recently shared his conservative outlook on the economy and discussed stocks that he is monitoring during a CNBC interview. He believes the U.S. is heading toward a fiscal disaster due to a lack of attention on rising debt. He also noted that nothing seems overvalued if a 10-year bond is valued at the current rate.
“My assumption is that we are headed into a fiscal disaster in our country. There’s nobody focusing on debt creation in the economy. My second assumption is that nothing is overvalued if a 10-year bond belongs at the current rate of 3.9%.”
Cooperman compared this to the 1972 Nifty Fifty period when government bonds were at 6.5%, and several companies which had high earnings multiples, eventually went bankrupt. He pointed out that these companies, despite their high valuations, were acquired by JP Morgan.
“In the Nifty Fifty period of 1972, the government bond went 6.5%, Avon products was 65x earnings, it has declared bankruptcy. Eastman Kodak went bankrupt with 48x earnings. IBM at 37x earnings got bankrupt. These are companies that are actively being bought by JP Morgan in the US trust.”
Cooperman emphasized that with the 10-year bond yield at 3.932%, nothing appears overvalued. He expects interest rates to remain low and anticipates a Federal Reserve rate cut in September, likely by 25 to 50 basis points. He expects that this will lead to a slow positive movement in the yield curve, with the 10-year bond yield increasing and its price declining.
Leon Cooperman also mentioned that he believes the current environment is more of a “market of stocks” rather than a unified stock market. Additionally, he expressed concern about the health insurance sector, noting that these companies are trading at low multiples, even though they have been generating excess capital and buying back their own stock. Cooperman then emphasized that he is motivated by valuation levels when assessing investments.
Leon Cooperman follows a value-focused investment strategy, concentrating on undervalued stocks and using a top-down approach to select sectors. He combines fundamental analysis with a bottom-up approach to build and manage portfolios. Omega Advisors, which handles over $3.3 billion in assets largely from Cooperman’s own wealth, has approximately $4.37 billion under management for seven clients. The firm’s Q1 2024 13F filing showed $2.4 billion in managed securities, with its top ten holdings making up 61.09% of the portfolio.
Our Methodology
In this article, we review Leon Cooperman’s latest CNBC interview and highlight ten stocks he owns and mentioned. We also provided analyst ratings, key details about each company, and the number of hedge funds investing in them.
Why focus on the stocks that hedge funds invest in? Our research shows that following the top picks of leading hedge funds can result in returns that beat the market. We use this strategy in our quarterly newsletter, where we choose 14 small-cap and large-cap stocks each quarter. Since May 2014, this approach has generated a 275% return, outperforming the benchmark by 150 percentage points. (see more details here)
A direct-to-consumer channel customer checking their mortgage account online.
Mr. Cooper Group Inc. (NASDAQ:COOP)
Number of Hedge Fund Investors: 33
Mr. Cooper Group Inc. (NASDAQ:COOP) is a prominent player in the residential mortgage industry, offering services in mortgage servicing, origination, and asset management. The current low-interest-rate environment benefits the mortgage sector by boosting refinancing and new mortgage activity. With interest rates remaining favorable, Mr. Cooper Group Inc. (NASDAQ:COOP) is well-positioned to take advantage of these increased opportunities.
Recently, Mr. Cooper Group Inc. (NASDAQ:COOP)’s subsidiary, Nationstar Mortgage Holdings Inc., announced a $750 million offering of 6.5% Senior Notes due in 2029. These notes will have an annual interest rate of 6.5% and will mature on August 1, 2029.
Diamond Hill Select Strategy stated the following regarding Mr. Cooper Group Inc. (NASDAQ:COOP) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon, Texas Instruments and Mr. Cooper Group Inc. (NASDAQ:COOP). Mortgage-servicing company Mr. Cooper Group is benefiting from a high interest-rate environment, which is supporting increased profitability in the mortgage-servicing business.”
Jay Bray, Chairman, President, and CEO of Mr. Cooper Group, shared this during their most recent earnings call:
“For the second quarter, pre-tax operating income came in at $219 million, which is up 46% year-over-year. Operating ROTCE was 15.3%, up nearly 400 basis points from a year ago. At the end of last year, we said we expected ROTCE in a range of 14% to 18% in 2025.
We’re pleased to be in that range already, and we’re feeling positive about our momentum heading into next year. I’m super excited with the 17% year-over-year increase in TBV, which reached $68.67 at the end of the quarter. This was a function of earnings plus stock repurchase, which has reduced the share count by 4% over the last year and by a cumulative 35% since inception. The Board approved an additional $200 million for stock repurchase. I would add that despite stock repurchase and asset growth, we’ve maintained a rock-solid balance sheet with our capital ratio still above our stated target range and ample liquidity. Turning to operations. The servicing team produced fantastic results with $288 million in pre-tax income, up a massive 58% from a year ago.
These results reflect strong growth with the portfolio ending the quarter at $1.2 trillion together with exceptional efficiency gains. In fact, you couldn’t ask for a better demonstration of operating leverage. Now shifting to originations where the environment remains challenging. Pre-tax operating income was $38 million, which was at the high end of our guidance thanks to strong execution in both our DTC and correspondent channels. Now let’s turn to Slide 4 and take you through the transaction with Flagstar. We announced we’re acquiring Flagstar’s mortgage operation from $1.4 billion in cash. This is a simple transaction structure in that it’s an acquisition of assets not a business combination. The assets include Flagstar’s MSRs and advances, which totals $1.2 billion; its subservicing business with total UPB of $270 billion as well as a third-party lending platform.
Additionally, we will subservice $9 billion in Flagstar loans remaining on their balance sheet. The total UPB is approximately $356 billion. The acquisition will be funded with cash on hand and MSR line draws. Flagstar servicing operations will be integrated onto our platform in a quick efficient and thoughtful manner.”
Overall COOP ranks 7th on our list of the cheap stocks to buy. While we acknowledge the potential of COOP as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than COOP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.