Leon Cooperman picks: It’s not uncommon to hear hedge fund managers and other prominent investors sounding off on the economy, companies they’re invested in, or even why they hate Apple. So when Leon Cooperman, the billionaire head of Omega Advisors, was on CNBC earlier this week discussing his favorite stock picks, it would appear that this was rational advice all viewers should pay attention to.
Except it’s not.
According to our research at Insider Monkey, the best opportunity for hedge fund piggybackers to outperform the market lies in the small-cap space.
In his interview on CNBC, Cooperman mentioned five of his top value investments: Sprint Nextel Corporation (NYSE:S), American International Group, Inc. (NYSE:AIG), QUALCOMM, Inc. (NASDAQ:QCOM), KKR Financial Holdings LLC (NYSE:KFN) and SandRidge Energy Inc. (NYSE:SD). All of these picks are fine and dandy in their own right, but only the last two are actually small-caps. In addition to KKR and SandRidge, Leon Cooperman has a few other small-cap stock picks that you should know about.
Atlas Energy LP (NYSE:ATLS) is Cooperman’s top small-cap pick, and sits at the seventh largest position in his $6.5 billion equity portfolio. Richard Driehaus and Jim Simons are a couple other names that hold this oil and gas E&P, which is up 45% year-to-date. Shares of Atlas have had such a good 2013 because of a few factors: 1) MLPs have seen rising interest from traditional institutional investors, 2) more ETFs are looking at this space, 3) dividend yields have been growing, and 4) the macro environment for domestic natural gas, oil and NGLs is very bullish.
In addition to the impressive appreciation, Atlas Energy pays a 3.5% dividend yield that has quadrupled since 2011, and the valuation isn’t overblown at an enterprise value 2.3 times its revenue.
Chimera Investment Corporation (NYSE:CIM), on the other hand, is a small-cap REIT that has been held by Cooperman since the second quarter of 2012 (see the full history here). Like the mythological origin of its name suggests, Chimera is a multi-faceted REIT that invests in residential MBS and different types of mortgage loans and it breaths quite a bit of fire with a 12% dividend yield.
Although quarterly dividend payments have fluctuated in value, they’ve been consistent in presence, and free cash flow has more than doubled over the past two years. On average, Wall Street expects funds from operations to grow by 5% to 6% a year over the next half-decade, but be aware that FFO has missed analyst targets in four of Chimera’s past five quarters. Even with the volatility, there’s no denying this REIT’s ridiculously attractive yield.