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.
We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see more details here).
#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.