Leon Cooperman (Trades, Portfolio), founder and chairman of the Omega Advisors family office, disclosed this week that his firm’s top six buys for the fourth quarter of 2019 included new holdings in Ferro Corp. (FOE, Financial) and Workday Inc. (WDAY, Financial) as well as position boosts in four existing holdings: DuPont de Nemours Inc. (DD, Financial), Energy Transfer LP (ET, Financial), Diamondback Energy Inc. (FANG, Financial) and Mr. Cooper Group Inc. (COOP, Financial).
Guru shares perspective on undervalued energy sector
Cooperman said in a CNBC Halftime Report interview on Tuesday that investors “have become too pessimistic on the energy sector” and “too optimistic” on companies like Tesla Inc. (TSLA, Financial). He further added that while the market is “knocking on the stages of euphoria,” it is not quite fully in euphoria yet.
Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s favorite market indicator stands at 158.1%, approximately 3% higher than the Feb. 3 market indicator level.
Despite the overall market staying significantly overvalued, the energy sector’s Shiller price-earnings ratio of 14.80 represents the lowest Shiller price-earnings ratio among the market sectors.
The SPDR Energy Select Sector Fund (XLE) is down over 18% over the trailing 12 months.
Portfolio overview
Cooperman, who previously worked at Goldman Sachs Group Inc. (GS, Financial), converted his Omega hedge fund into a family office in 2018, citing in a letter that he did not wish to spend the rest of his life chasing the Standard & Poor’s 500 Index benchmark. The fund chairman combines his macroeconomic views and fundamental valuation in his investing strategy, paying close attention to valuations.
As of quarter-end, Omega’s $1.88 billion equity portfolio contains 60 stocks, with turnover of 9%. The top three sectors in terms of weight are financial services, energy and communication services, with weights of 24.07%, 17.85% and 11.73%. The sector weight for energy increased from the prior quarter’s weight of 16.05%.
New buy: Ferro
Omega purchased 925,000 shares of Ferro, giving the position 0.73% weight in the equity portfolio. Shares averaged $12.99 during the quarter.
The Mayfield Heights, Ohio-based company manufactures and sells chemical products through three business segments: performance coatings; performance colors and glass; and pigments, powders and oxides. GuruFocus ranks Ferro’s profitability 7 out of 10: operating margins have expanded over the past five years despite outperforming just 57.46% of global competitors. Additionally, Ferro’s three-year revenue growth rate of 15.90% outperforms 77.69% of global chemical companies.
Mario Gabelli (Trades, Portfolio) also has a holding in Ferro.
New buy: Workday
Omega purchased 61,000 shares of Workday, giving the holding 0.53% weight in the equity portfolio. Shares averaged $166.19 during the quarter.
The Pleasanton, California-based company provides software as a service platform for enterprise resource planning. GuruFocus ranks Workday’s financial strength 5 out of 10: Although the company has a strong Altman Z-score of 6.95, its debt-to-equity ratio of 0.67 underperforms 75.37% of global competitors.
Cooperman said in the CNBC Halftime Report interview that Omega purchased shares of Workday, saying that the company is “picking up market share” and a “well-regarded” product. Shares reached an intraday high of $199.90 on the news, up over 20% from the fourth-quarter 2019 average price.
Paul Tudor Jones (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)’s Bridgewater Associates also purchased shares of Workday during the quarter.
DuPont de Nemours
Omega added 426,335 shares of DuPont de Nemours, increasing the position 116.36% and the equity portfolio 1.46%. Shares averaged $66.07 during the quarter.
The Midland, Michigan-based company applies diverse science and expertise through technology-based materials, ingredients and solutions. According to GuruFocus, the company has operating margins that outperform over 72% of global competitors despite a three-year revenue decline rate that underperforms over 81% of global chemical companies.
Lee Ainslie (Trades, Portfolio)’s Maverick Capital also increased its holding in DuPont during the quarter.
Energy Transfer
Omega added 1,484,450 shares of Energy Transfer, increasing the stake 42.17% and the equity portfolio 1.01%. Shares averaged $12.32 during the quarter.
The Dallas-based company owns a wide network of crude oil, natural gas and gas liquids primarily in Texas and the U.S. midcontinent region. GuruFocus ranks Energy Transfer’s profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, expanding profit margins and a return on equity that outperforms 87.65% of global competitors.
Diamondback Energy
Omega added 200,000 shares of Diamondback Energy, doubling its position and increasing the equity portfolio 0.99%. Shares averaged $83.04 during the quarter.
The Midland, Texas-based company explores for and produces oil and natural gas primarily in the Permian Basin. GuruFocus ranks Diamondback’s profitability 7 out of 10 on several positive investing signs, which include operating margins that have increased approximately 4.20% per year on average over the past five years and are outperforming over 88% of global competitors.
Mr. Cooper
Omega added 928,427 shares of Mr. Cooper, increasing the stake 92.51% and the equity portfolio 0.62%. Shares averaged $12.33 during the quarter.
The Coppell, Texas-based company engages in the reinsurance of mortgage insurance policies business. According to GuruFocus, Mr. Cooper’s cash-to-debt and debt-to-equity ratios underperform over 97% of global competitors, suggesting low financial strength. Despite this, the company’s equity-to-asset ratio of 0.10 underperforms just 51.13% of global mortgage finance companies.
Disclosure: No positions.
Read more here:
- Al Gore’s Generation Investment Management Buys 4 Stocks in the 4th Quarter
- Top 5 4th-Quarter Buys of George Soros’ Firm
- David Tepper’s Top 5 Buys in the 4th Quarter
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