Omega is now a multi-billion dollar hedge fund focused on value investing. The fund uses a top-down approach to investing, selecting sectors and then finding undervalued companies using fundamental analysis. During the fourth quarter, Cooperman and his hedge fund sold off a couple large-cap stocks, while making a big bet on a mid-cap oil and gas play. Let's check out his top moves.
Cooperman Dumped These Stocks
A couple of big sell offs for Cooperman during the fourth quarter included Apple Inc. (NASDAQ:AAPL) and Walgreen Company (NYSE: WAG). Apple Inc. was previously Cooperman's fifth largest holding, while Walgreen was thirty-first. At a time when a number of hedge funds are dumping their AAPL stock, on concerns that growth could be slowing, Cooperman joined the crowd and sold off all of his shares during the fourth quarter. From my perspective, although Apple Inc. has a leading position in the iPhone and iPad markets, these products carry too much weight for the tech stock, making up over 70% of 2012 revenue. What's more is that its mobile operating system, iOS, continues to be dominated by Google's Android, and even its iPad appears to be losing market share. The pressure in both segments, mobile and tablet, are robust, with major tech companies gunning for Apple, including Samsung, Google, Blackberry, Nokia, and Sony; as a result, I believe Apple is still a "wait and see" story.
Another big sell-off for Cooperman was Walgreen. This comes after the company saw revenue and earnings weakness during the fourth quarter due to its mishap with Express Scripts. The company saw its major segment, prescription sales (60% of revenue) down 7% last quarter on a year over year basis, and prescription comp sales down 11%; this was on the back of a 4% decline in customer traffic.
Although Walgreen did indeed re-sign a multi-year deal with Express Scripts, the damage may already be done, with major peer CVS expected to have picked up some 30% of the customers switching pharmacies after the Walgreen-Express fallout. Meanwhile, Walgreen is seeing market share infringement from major retailers Wal-Mart and Target. I tend to agree with Cooperman, that perhaps Walgreen is no longer a stock to own.
Cooperman's Big Buy
A big new position for Cooperman is SandRidge Energy (NYSE: SD). The energy stock is now the hedge fund's 17th largest holding and 2.84% of its portfolio. What's more is that Cooperman recently upped his stake by 11% earlier this month, now owning 5.5% of SandRidge's outstanding shares. Cooperman joins other hedge funds that are battling SandRidge management in hopes of unlocking shareholder value by replacing management and implementing better utilization of its assets.
S&P expects oil and gas production to be up another 18% in 2013, after being up 21% in 2012; a positive for the industry and SandRidge, especially since M&A should remain a hot-topic for the industry. The merger and acquisition market remains robust for North American onshore oil and gas, and activist hedge fund owner, TPG-Axon, believes that it would be very advantageous for a larger player in the oil and gas industry, with a lower cost of capital, to step in and buy SandRidge for its impressive asset base (read more about the value in SandRidge).
Cooperman's Big Increases
A couple of big increases for Cooperman include NYSE Euronext (NYSE: NYX) and Sprint Nextel Corporation (NYSE: S). After one of Cooperman's largest increases, a 200% increase in shares owned, NYSE Euronext is now the hedge fund's 17th largest holding.
NYSE Euronext is in talks with IntercontinentalExchange. Inc.(ICE) about being acquired. This would be a positive for both companies; the two companies together would be a leader in the market exchange industry, with a stronghold in the commodities and derivatives market. This deal will also give NYSE Euronext a presence in Europe without the expenditures.
IntercontinentalExchange. Inc.(ICE) has given NYSE Euronext three options for its proposed acquisition. Of the three deal options for NYSE Euronext, one all cash, one all stock and the other a cash-stock mix, the most advantageous deal suggests an upside of 8.5% still remains for the stock. Currently, the best deal includes 0.2581 shares of ICE stock per NYSE Euronext shares (see why billionaire Warren Buffett once wanted NYSE Euronext).
Sprint is now Cooperman's top stock owned after increasing his stake 30% from the fourth quarter. I think the recent $20 billion investment from Japanese mobile phone company Softbank will be a long-term positive for the company, giving them much needed access to capital to make spectrum acquisitions. Part of this includes the purchase of the remaining Clearwire shares that it doesn't already own. Another notable deal for Sprint has been its agreement to buy U.S. Cellular's Chicago, central Illinois and Midwest markets, giving Sprint 585,000 customers and spectrum assets. Fellow billionaire John Paulson is also a big fan of Sprint, adding the stock to his portfolio last quarter (see all of Paulson's shakeups).
Although Sprint's position in the mobile market (third in the U.S. with respect to subscriber count) forces a lower valuation on its shares, the question is; is it too low? I think so.
Compare Price to Sales
- Sprint 0.5 times sales
- AT&T 1.6 times sales
- Verizon 1.2 times sales
Don't Be Fooled
Billionaire Leon Cooperman made a couple major sells last quarter, dumping all of his Apple and Walgreen shares, and for good reason. He has also made an interesting bet in the oil and gas industry; backing hedge funds TPG-Axon and Fairfax Financial in an effort to shakeup management at SandRidge. As far as big increases, it appears that Cooperman thinks the Softbank investment in Sprint will payoff and that NYSE Euronext could be a merger-arb play.