Billionaire Leon Cooperman on an Alpha Spree
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Billionaire Leon Cooperman appeared at the CNBC Delivering Alpha conference last week to tout his top picks. His Omega Advisors hedge fund has nearly $6.5 billion in assets under management. Cooperman started out by reiterating his love for SandRidge Energy (NYSE: SD), noting that the company will not go bankrupt.
SandRidge is the controversial oil and gas company that Cooperman believes has mismanaged assets. The company operates various drilling rigs that focus on exploration and production activities in Texas and the Gulf Coast.
SandRidge still has a nearly $1 billion funding gap for 2013, although this has been shrinking. At the end of the last quarter, the company had over $2 billion in liquidity and no debt maturities until 2020.
The company managed to continue snatching up assets throughout the financial crisis, despite the steep fall in natural-gas prices. This has helped position the company as one of the purest plays on the Mississippi Lime shale.
Cooperman is alongside activist hedge fund TPG Capital as a supporter of Sandridge. TPG owned some 36.2 million shares at the end of 1Q, compared to Cooperman's 26.5 million. What's more is that other notable hedge fund Fairfax Financial owns over 32 million shares and Highfields Capital owns 13 million.
During 1Q, TPG got four nominees elected to the board and was instrumental in getting former CEO Tom Ward ousted. Now TPG and the board is pushing for cost cutting and de-leveraging. I am a believer in Cooperman and TPG and like SandRidge as a long-term play on natural gas.
Qualcomm (NASDAQ: QCOM) is the chip-making giant. The company is seeing various pressures related to the PC decline, but Cooperman believes that there is just too much pessimism surrounding the stock. The company also has an ironclad balance sheet, with over $30 billion in cash and no debt.
Qualcomm's 2Q EPS came in at $1.06, compared to $0.84 for the same period last year and on the back of 24% revenue growth. Revenue is projected to be up an impressive 30% in fiscal 2013, after a 28% increase in 2012.
Qualcomm gets around 66% from the sale of CDMA-based chips and system software. Qualcomm also leverages its technology by licensing its IP portfolio. Its license and royalty segment generated about 31% of revenues in the first half of fiscal 2013.
What's more is that Qualcomm generates a whopping 88% operating margin from its license and royalty fee segment. Its royalties are collected when manufacturers earn revenue from its CDMA equipment.
Qualcomm's equipment is used by various phone makers, including Samsung, LG and Motorola. I believe that Qualcomm is the leader in the industry, an industry that's ripe with barriers to entry. This is in part thanks to the CDMA IP that Qualcomm holds.
Qualcomm also has opportunities beyond mobile, with the potential to tap other electronic markets by developing WiFi chips for televisions, video games, printers, and other home devices.
Express Scripts (NASDAQ: ESRX) is another one of Cooperman's big bets. He notes that the company is a high-growth and share-buyback story. Express is the largest pharmacy benefits manager (PBM) after having acquired Medco Health Systems in 2012. Revenue is expected to rise to $103 billion in 2013 from $93.8 billion in 2012.
One of the key drivers for the the PBM industry will be the flood of generics to the market. Express estimates that some $40 billion in specialty drugs will lose protection through 2020, creating a huge opportunity that it believes it's well positioned to capitalize on.
Express also has plans to tap the mail-order market, where many people are moving to the segment to save money. This is a good thing for Express, as this segment tends to be higher margin.
Some of the most notable news for the company includes it renegotiation with Walgreen, where it started filling prescriptions for Walgreen customers last September. Express now expects to generate between $4.23 and $4.33 in EPS for 2013 thanks to the Walgreen deal and contributions from Medco. Thus, despite trading at nearly 40 times trailing earnings, the company only trades at 14.5 forward earnings.
In his closing remarks, Cooperman noted that "goal number one is not to lose money, goal number two is beat the S&P 500 net of fees." With the three stocks listed above, I believe Cooperman, and investors alike, can accomplish this goal.
SandRidge is probably the riskiest of his three stock picks, with the company trading near $5 and relying heavily on the Mississippi Lime shale. Meanwhile, Qualcomm has a solid balance sheet with strong industry tailwinds related to rising wireless demand and opportunities to tap other electronic markets. Express also appears to be a solid investment thanks to its market-leading position and opportunity to capitalize on the growing generic-drug market.
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Marshall Hargrave has a position in Sandridge Energy. The Motley Fool recommends Express Scripts. The Motley Fool owns shares of Express Scripts and Qualcomm. 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!