Let’s face facts: You don’t get to be a billionaire by moving with the herd.
Leon Cooperman, former Goldman Sachs (GS) CEO and current portfolio manager of $8.4 billion hedge fund Omega Advisors, has made a career in not following the market’s general direction. Cooperman has been quoted as saying, “If I could buy a company selling below its net asset value and getting a decent yield, I’ll buy it.”
That focus on value seeking has led to some pretty gutsy and contrarian calls, and ultimately has turned out to be quite profitable for the fund. Since founding Omega in 1991, Cooperman’s annual returns have averaged around 16% per year.
Lately, while most of the market has been selling stocks and burying their heads in the sand, Cooperman has been buying equities hand over fist — with the largest purchases mostly in energy companies. Overall, the energy and basic materials sectors are his largest holdings and make up around 33% of his total portfolio.
For investors, some of his contrarian calls in the energy sector could prove to be quite profitable in the years ahead.
Here are the top five:
It’s been a battle of back and forth for investors in upstream master limited partnership Linn Energy (LINE). Allegations by various hedge funds and investment news outlet Barron’s have questioned the firm’s aggressive hedging practices and cash flows, and now the SEC is investigating. Those two factors are vital to the firm’s appeal — and its hefty 9.1% dividend yield — and the bears have pushed the stock down hard during the past few weeks.
But the bulls can count Cooperman among their ranks.
The hedge fund manager added nearly 3 million shares of the energy producer to his portfolio during the last quarter — bringing his total count to above 7 million. Overall, Omega Advisors isn’t concerned with how Linn Energy accounts for its hedging program. More importantly, Cooperman stated during an interview with CNBC that he had spoken to management of Berry Petroleum (BRY) about the firm’s proposed stock merger with Linn and cited that the company remains committed to that deal.
Cooperman estimates that Linn Energy’s net asset value is around $40 per share — well above the company’s current price of $33.
EV Energy Partners
Cooperman must have a thing for undervalued MLPs, which would explain his position in EV Energy Partners LP (EVEP).
Shares of EV Energy have been burned by the Utica shale’s less-than-stellar results on the oil and NGL side. With the Utica producing more gas than oil, many producers have been fleeing in spades. That’s been a huge problem for the firm as EVEP has roughly 100,000 net acres that it has been trying to offload in the region. And underperforming wells have really hurt the company’s ability to complete a sale.
Given its Utica issues, shares of the upstream MLP have dwindled this year.
However, the firm does have plenty of acreage and production in regions like the Barnett, San Juan and Permian Basins. All of which pump out serious production — approximately 162 million cubic feet per day in 2013. That helps produce some serious cash flows and supports the MLP’s 9% dividend.
Cooperman added roughly 950,000 shares during the first quarter based on the Utica overhang.
Although only the fourth-largest U.S. energy firm, Occidental Petroleum (OXY) has been acting like the leader it should be. Shares of the company shed nearly 30% from a May 2011 peak of $115 a share to the end of 2012, but so far this year, it’s out ahead of the broader market with 17% gains.
Many analysts are calling for it to be the next target for activist shareholders, especially because its 23-year tenured CEO just retired. Speculation is that a big shareholder could push OXY to shed its international assets and focus on Texas and California. The company has the most acreage in California’s Monterey shale and is the top producer in Texas. A sale or spinoff the international business could fetch about $35 billion in proceeds, according to analyst estimates.
Additionally, OXY has all sorts of midstream and chemical refining assets that would fit perfectly in a tax-advantaged master limited partnership.
All in all, analysts predict that a break-up of OXY could be worth about $115 per share — about $25 higher than today’s selling price. It’s easy to see why Cooperman would be interested in Occidental and why he recently purchased more than 970,000 shares.
Cobalt International Energy
While Angola and the Gulf of Mexico may seem worlds apart, the two very different places will both drive future growth at Cobalt International Energy (CIE).
The E&P firm owns roughly 1.4 million gross undeveloped acres in the Gulf as well as more than 5.6 million gross undeveloped acres in Angola. That acreage has turned in some pretty impressive results with initial test wells and production. However, analysts — including Cooperman — believe that the market isn’t fully evaluating the potential of those huge tracts of land.
After all, if there is oil in one well, there’s usually oil right next to it. By that logic, Angola has reserves of more than 12.66 billion barrels of crude oil
That could mean that Cobalt is sitting on a virtual ocean of crude, and investors could be sitting on some nice gains. Price targets for CIE shares are about $15 higher than they currently are trading for.
Cooperman added 1 million shares of CIE during the quarter.
With founder and former CEO Tom Ward out at SandRidge Energy (SD), it’s a whole new ballgame.
Ward was criticized for using SandRidge as his own personal cash cow, while investors lost 80% since the company went public back in 2007. That led to his ouster, and now investors are once again able to focus strictly on the E&P firms prospects.
During the past few years, the company has begun to transition from a strictly natural-gas-focused company to one with broader energy ambitions. That includes adding acreage and exposure to both on- and offshore fields. Rising production at these new sites — like in the Mississippi Lime and the Gulf of Mexico — have helped bolster cash flows and reduce debt.
SandRidge is a turnaround story waiting to happen, and Cooperman has bet big on that happening. The hedge fund manager raised his stake in SD by more than 2 million shares this past quarter and now owns a whopping 26.5 million shares. Cooperman could make a mint off of SandRidge as estimates for its real value range anywhere from the $9 to $12 range — much higher than the current going price of $4.77.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.