- Leon Cooperman of Omega Advisors says the stock market still has more room to climb because it's more or less at fair value today - and bull markets never stop at fair valuations.
- Even after more than 10 years of gains, he said there are plenty of attractive US stocks. He told the audience at CNBC's Delivering Alpha conference about 3 top picks.
- All three choices are in relatively unpopular sectors: health care, energy, and print media. While each face well-known challenges, Cooperman said their appealing valuations make them too good to pass up.
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Even in a stock market that he admits is "picked over," Leon Cooperman - the founder and CEO of Omega Advisors - says there are plenty of promising opportunities to be found.
At the recent Delivering Alpha conference hosted by CNBC, Cooperman told the audience that he still has a "neutral-plus" view of the market, and that there is still more upside than downside in the S&P 500 index.
"As much as I think the S&P is adequately valued, I'm finding a lot of companies that are very attractively priced," he said. "Market cycles don't end at fair value, they end at overvaluation."
At the same time, he added, paying attention to price alone isn't going to be a rewarding approach.
"I believe 10 years into a bull market, if you're finding cheap stocks, there's something wrong with the stock," he said.
With that caveat, Cooperman named these three stocks as especially promising and detailed his reasons for each.
Cigna
Cooperman acknowledged that Cigna, like other health care companies in general and insurers specifically, is facing political risk. But he said that based on membership growth and price growth, its earnings per share could climb 12% to 14% next year.
He argues that its earnings are growing much faster than the rest of the market, but its valuation looks much lower.
"Cigna will generate, next year, $8 billion of free cash flow. It's buying back 3 or 4% of the company annually and sells a seven half times estimated earnings," he said.
While the company spent heavily to complete its recent purchase of pharmacy benefits manager Express Scripts, Cooperman added that its debt to capital ratio should improve soon.
WPX Energy
Last month oil and gas driller WPX Energy announced a large stock repurchase and said it believes it will start generating free cash flow over the second half of 2019. Cooperman said that was a very positive development and praised Chairman and CEO Rick Muncrief.
"I think they'll be a constant buyer of their own stock," he said. But the stock, in his view, is trading at about half of the company's net asset value.
He said there is likely to be consolidation in the industry and that its share price doesn't reflect that, either. Cooperman said there is a big gap between the value an acquirer might pay for WPX and the value of the stock, and he likes to find companies that have a substantial gulf between their stock private and that "private market value."
New Media
Cooperman also said he owns a substantial chunk of New Media Investment Group, the company that is preparing to buy USA Today publisher Gannett - a deal he said "has a very asymmetric reward-risk."
In the meantime he said the stock is very inexpensive compared to its potential returns because it's in the print media business.
"The pro forma of this company is $4 billion of revenues, $4 of earnings per share, a probable dividend of $4 in 2022," he said.
While he acknowledged the problems print journalism faces, Cooperman said New Media is already getting one-fourth of its revenue from digital operations, and that revenue is improving. He also praised the company's management and noted that the company's management is buying the stock.