Three Interesting New Buys from Leon Cooperman

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Leon Cooperman, the founder and chairman of Omega Advisors, is a very successful value investor. With nearly $6.5 billion in total assets under management, he owns around 81 stocks in his portfolio. In the first quarter of 2013 he initiated long positions in Occidental Petroleum (NYSE: OXY), LyondellBasell Industries NV (NYSE: LYB) and Covidien PLC (NYSE: COV).

While Occidental Petroleum and LyondellBasell each accounted for 1.2% of his portfolio, Covidien represented around 0.93% of his total portfolio at the end of March 2013.

Occidental – the current shakeup in its Board

Occidental is considered one of the biggest oil & gas corporations in the world, operating in three main business segments: Oil & Gas, Chemical and Midstream and Marketing. Most of its revenue, $18.9 billion, or 78.2% of the total revenue, was generated from the Oil & Gas segment. The Chemical segment ranked second with $4.58 billion in revenue, while the Midstream and Marketing segments contributed only $1.4 billion in sales. In 2012, Occidental was estimated to have nearly 3.3 billion BOE in its proved reserves.

Recently, Occidental’s executive chairman Ray Irani has been voted out, with 76% of the total votes, from re-election in the company. Investors have criticized him for his outsized pay and the recent attempt to replace CEO Stephen Chazen. Fund manager Steven Romick commented that Occidental’s directors are the most highly paid in corporate America. Nine 2012 directors had around as much as $640,000 in annual compensation. As most of its compensation was in the form of stocks, they did not buy Occidental’s shares from the open market. According to Steven Romick, only two directors purchased the company’s stocks since 1995, with only 6,000 shares in total. Ray Irani still held nearly 8.15 million shares in the company, valued at nearly $740 million, or around a 1% stake in the company. Occidental is trading around $91 per share, with a total market cap of $73.2 billion. The market values Occidental at only 6 times EV/EBITDA.

LyondellBasell – the leading chemical company with cheap valuation

LyondellBasell, based in the Netherlands, is one of the leading independent chemical companies in the world, operating in five main business segments: Olefins and Polyolefins – Americas (O&P – Americas), Olefins and Polyolefins – Europe, Asia, International (O&P-EAI), Intermediates and Derivatives (I&D), Refining and Technology. The majority of its revenue, $14.2 billion, or 27.3% of the total revenue, was generated from the O&P – EAI segment. The Refining segment ranked second with $12.5 billion in revenue while the I&D segment generated around $9.28 billion in sales to customers. Interestingly, the two biggest income contributors were the O&P – Americas and I&D segment, with $2.65 billion and $1.43 billion, respectively, in operating income.

LyondellBasell has been a cash cow. In 2012, it generated around $4.79 billion in operating cash flow and $3.73 billion in free cash flow. The company also has quite a strong balance sheet. As of March 2013, it had $11.64 billion in revenue, $2.88 billion in cash and only nearly $4.5 billion in both long and short-term debt. The company is trading at around $65.70 per share, with a total market cap of $37.80 billion. The market values the company at only 6.62 times EV/EBITDA.

Covidien – the upcoming pharmaceutical business spinoff

Covidien, the spinoff from Tyco, is a leading manufacturer of healthcare products to hospitals and surgi-centers in more than 140 countries, operating in three main segments: Medical Devices, Pharmaceuticals and Medical Supplies. The Medical Devices segment generated most of its revenue, $8.11 billion, or 68.4% of the total revenue. It was also enjoyed the highest contribution margin among those three segments at 30.8%.

Recently, the company has approved the spin off of its Mallinckrodt pharmaceuticals business, to focus solely on the Medical Devices business. It announced that investors could get one ordinary share of Mallinckrodt for every eight Covidien shares. Covidien said that it would have no ownership interest in Mallinckrodt after the distribution. Jose E. Almeida, Chairman and CEO of Covidien commented

As separate companies, Covidien and Mallinckrodt will have greater flexibility to focus on and pursue their respective growth strategies and capital needs, while potentially providing shareholders with greater value over the longer term.

At $65.20 per share, Covidien is worth nearly $30.70 billion on the market. The market values the company at 10.35 times EV/EBITDA.

Among the three, LyondellBasell seems to be income investors’ favorites, as it pays its shareholders dividends with the highest yield at 3%. Occidental ranked second with 2.8% dividend yield while the dividend yield of Covidien is the lowest, at 1.6%.

My Foolish take

Among the three, I like LyondellBasell and Occidental the most due to their decent dividend yields and low EV multiple. For Covidien, I would wait and see the detail pro-forma numbers of both Covidien and Mallinckrodt to determine whether or not the parent and/or the newly spinoff is a good investment opportunity.

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Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Covidien. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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