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James Li
James Li
Articles (830)  | Author's Website |

Leon Cooperman’s Top 5 Buys in the 2nd Quarter

Omega family office chairman discloses stake in Berkshire bank Wells Fargo as yield curve inverts

Leon Cooperman (Trades, Portfolio), founder and chairman of the Omega Advisors family office, disclosed this week his top five new buys for the second quarter included Wells Fargo Inc. (NYSE:WFC), a major bank holding of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B). The other top buys were Diamondback Energy Inc. (NASDAQ:FANG), Carnival Corp. (NYSE:CCL), Corteva Inc. (NYSE:CTVA) and VICI Properties Inc. (NYSE:VICI).

The Omega chairman cited in a 2018 client letter that he turned his hedge fund into a family office at year-end since he “did not wish to spend the rest of [his] life chasing the Standard & Poor’s 500 index and generating returns on invested capital.” Despite this, Cooperman continues combining his macroeconomic views and financial valuation in his market strategy.

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Cooperman said in a July 31 CNBC Halftime Report interview that the Federal Reserve cutting interest rates can “push people out of the risk curve.” For example, investors of Treasury bonds that are yielding 2% would attempt to invest in industrial credits that yield 4%.

Billionaire investor Leon Cooperman argues why the Fed shouldn't cut rates from CNBC.

Wells Fargo

Cooperman purchased 395,000 shares of Wells Fargo, Berkshire’s third-largest holding as of the first quarter. The Omega chairman dedicated 1.11% of his equity portfolio to the position.

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Although shares of the San Francisco-based bank averaged $46.77 during the second quarter, shares closed at $43.97 on Wednesday, tumbling 4.32% on a day the three broad U.S. indexes each sank approximately 3% from Tuesday’s close. The Dow Jones Industrial Averaged finished the day at 25,479.42, approximately 800 points lower than the previous close of 26,279.91 as the 10-year Treasury constant maturity rate dipped below the two-year Treasury constant maturity rate for the first time since June 5, 2007. Such a phenomenon has predicted each recession since 1976.

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Berkshire has not released its second-quarter portfolio yet as the deadline is 45 days after the quarter ends.

Portfolio summary

As of quarter-end, Omega’s $1.68 billion equity portfolio contains 58 stocks, of which eight represent new holdings. The portfolio’s top three sectors in terms of weight are industrials, energy and financial services with weights of 24.56%, 16.05% and 10.56%.

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Diamondback Energy

Cooperman purchased 200,000 shares of Diamondback Energy, giving the holding 1.29% equity portfolio weight. Shares averaged $104.45 during the quarter.

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The Midland, Texas-based company produces oil and gas, operating primarily in the Permian Basin. GuruFocus ranks the company’s profitability 6 out of 10: Even though the return on equity underperforms 64.29% of global competitors, Diamondback Energy’s operating margin has increased approximately 4.20% per year on average over the past five years and is outperforming approximately 78% of global competitors.

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Carnival

Cooperman purchased 390,000 shares of Carnival, giving the position 1.08% weight in the equity portfolio. Shares averaged $52.35 during the quarter.

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The Miami-based company operates a wide variety of cruise lines around the globe, including Princess Cruises in the U.S., P&O Cruises in the U.K., Costa Cruises in Italy and AIDA in Germany. GuruFocus ranks the company’s profitability 6 out of 10: expanding profit margins and a strong Piotroski F-score of 7 offset a three-year revenue growth rate that outperforms just 50.71% of global competitors.

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Corteva

Cooperman disclosed a 366,400-share holding in Corteva, giving the position 0.64% equity portfolio weight. Shares averaged $27.28 during the period between May 24 and June 30.

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Corteva, DowDuPont’s agricultural business, became a public company on June 3, when the parent company distributed Corteva shares to its shareholders.

VICI Properties

Cooperman purchased 400,000 shares of VICI Properties, giving the position 0.52% equity portfolio weight. Shares averaged $22.33 during the quarter.

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The New York-based real estate investment trust owns, acquires and develops real estate assets across gaming, hospitality, entertainment and leisure destinations. GuruFocus ranks the company’s financial strength 4.7 out of 10: Although the debt-to-equity ratio and equity-to-asset ratio are outperforming over 76% of global competitors, VICI Properties has interest coverage below Benjamin Graham’s safe threshold of 5 and an Altman Z-score that suggests possible financial distress.

Disclosure: No positions.

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About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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