Lately, Leon Cooperman‘s Omega Advisors has been closing positions in companies in which it held hefty stakes. According to a newly amended filing, Cooperman also disposed of its entire stake in SandRidge Energy Inc. (NYSE:SD), which contained 22.33 million shares and represented about 5% of the energy company’s outstanding stock. Earlier this month, the fund also sold its stake in the lawsuit ridden casino-entertainment and hospitality services company, Caesars Entertainment Corp (NASDAQ:CZR). Other companies that were given the boot from the fund’s portfolio, according to its recent 13F filing include HCA Holdings Inc (NYSE:HCA), Gilead Sciences, Inc. (NASDAQ:GILD), Cabot Oil & Gas Corporation (NYSE:COG), and Apple Inc. (NASDAQ:AAPL).
Self made billionaire, Leon Cooperman launched Omega Advisors in 1991 after he had retired from Goldman Sachs, where he had been working for 25 years. At the end of the first quarter of 2015, the value of Omega’s equity portfolio stood at $6.27 billion, with the finance sector representing about 26% of the holdings.
We pay attention to hedge funds’ moves because our research has hown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. however, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks returned 142% since then and outperformed the S&P 500 Index by 84 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
Omega initiated a stake in SandRidge Energy Inc. (NYSE:SD) during the fourth quarter of 2012, while the stock of the $494 million oil and natural gas company has depreciated by more than 83% since then. Although the shares are currently trading fairly cheaply with a twelve month trailing price to sales ratio of 0.37 as compared to the industry’s average of 2.3, concerns about the company’s debt burden loom over the investors. By the end of the first quarter SandRidge Energy Inc. (NYSE:SD)’s total debt to equity ratio stood at a whopping 376 while the industry averages around 60.
The company posted particularly disappointing results for the first quarter as revenues of $215.31 million fell more than 51% on a year-over-year basis and were a long way from the expected mark of $328 million. In addition, the company’s net loss expanded to $2.19 per share from $0.31 a year earlier. Liquidity is also becoming a problem for SandRidge Energy Inc. (NYSE:SD) and its quick ratio at the end of the first three months stood at 0.90, significantly lower than the industry’s average of 1.51. The cash balance declined to $11.8 million from $181 million at the end of 2014.
The management intends to deal with this by reducing rig count and making cuts in the CapEx program. The operational rigs have already been reduced to seven, as of the beginning of May in comparison to 35 at the end of last year. Moreover, SandRidge Energy Inc. (NYSE:SD) is also planning to raise about $200 million from asset sales this year in order to improve its liquidity. The company’s cost cutting plan involves reaching $2.4 million per lateral in the second half of this year. Currently the cost stands at $2.7 million. This would improve the rate of return to 50% from the current 37%.
Besides Omega, other funds too have been disposing off their stakes in SandRidge Energy Inc. (NYSE:SD). Among those that we track, 20 firms had an aggregate investment of $241.42 million in the company at the end of March, as compared to 24 funds with $266.12 million at the end of the previous quarter. Prem Watsa is the largest stockholder among these funds, holding some 50.89 million shares of SandRidge Energy Inc. (NYSE:SD) valued at $90.58 million as of the end of March.