market folly

We're posting up notes from the Great Investors' Best Ideas Investment Symposium in Dallas and next up is Lee Cooperman of Omega Advisors.  He talked about his overall macro view and then drilled down on three stock picks.


Cooperman's Macro Takeaways

He says he's been optimistic the last three years, but is indifferent about markets now.  He thinks we'll see slow growth and no recession (a 1 in 5 chance it happens).  He points to the ECB succeeding in kicking the can down the road and China avoiding a hard landing as keys going forward.

Cooperman argued that the Fed has created an environment that's best for equities.  Valuation is attractive when you compare it historically, though he later said that the valuation for the market now is "about right."  He says investors have de-risked and many managers are running low exposure.  Therefore, the max-pain trade is a move higher.

He believes that a peak in corporate profits in this business cycle is coming and that the fiscal cliff is a formidable issue for the market.  While the economy is not great, we need to see a bigger dent in unemployment.  We recently posted up another great presentation from Cooperman on hedge funds and life.

The Omega founder singled out high yield bonds as they yielded 20%+ in the crisis and now that yield is down to 6%.  There's been a dramatic re-pricing in high yield, but not so much in equities.  He again pointed out his disdain toward US government bonds, pointing out a contrarian signal that pensions have their third lowest equity exposure since 1997.

He thinks that investors will sell investments before the tax rates go up.  As far as the election goes, he's also pro-Romney.


Cooperman's 3 Stock Picks


1.  McMoran Exploration (MMR): He really loves the leadership of this company and thinks they're poised to do great things with their wells.  Currently trading at just over $11.75, he thinks the stock is worth $33 and points to Chevron and Freeport McMoran also being involved in their projects.


2.  Sprint Nextel (S):  He talked about how Softbank is putting $8 billion into the company and thinks the stub is worth $3.67 at 3x EBITDA.  He says the company is growing better than people give them credit for and many investors gloss over the name due to the poor Nextel deal.  Cooperman also pointed out past success by Softbank with telecom in Japan and Vodafone, noting vast improvement post-involvement of Softbank.  In 12-18 months, he thinks S is worth $6.50.


3.  Tetragon Financial (TFG):  He labeled this company as "too complicated" and blasted management at the beginning of his pitch, but then still managed to make the case for the company.  He said that you "go to bed with dogs, you wake up with fleas" and pointed out that the company hasn't had a conference call for 5 years so it's tough to get questions answered.

We're pretty sure he said his cost basis is around 2-3 in the name.  He pointed out the company's 20% return on equity, a book value of between 14-25 and the fact that a large portion of the company's market cap is in cash and it trades at a big discount to book.  It's also worthwhile that Cooperman has also held a longstanding position in similar company KKR Financial (KFN).


Perhaps the most telling statement from Cooperman was that he's sitting on a lot of cash now because there's a lot that can happen in the coming months.


For the rest of the presentations, head to notes from the Great Investors' Best Ideas conference.