Barron's Interview: Six Winners No Matter Where We Go From Here

Barron's interviews Omega Advisors' top money managers Lee Cooperman and Steven Einhorn, whose fund has returned 16% annually since 1991. They think the market's downside is limited, as perhaps is its upside, but that there is an abundance of quality stocks available now - on the cheap.

We are buying plenty of attractively valued securities, but this is not an environment to be complacent... The ingredients for a decent bottom are in place, but any significant upside is going to require help from two areas. No. 1, we have to see a bottoming in home prices. No. 2, we are going to have to see crude-oil prices recede.

Still, the following tailwinds limit the market's downside.

• Valuation - "The market looks attractively priced in an absolute sense and relative to inflation, bond interest rates and to other assets." At 14x this year's earnings, the market's well below its long-term average. Add to that weak bond yields and healthy net profit margins, and the market seems attractively priced.
• While far from robust, economic weakness doesn't seem to be gathering significant speed.
• The incoming president will introduce a second fiscal stimulus package, likely larger than that of his predecessor.
• Non-financial earnings continue to beat consensus.

Stocks they like

• Corning (GLW) - "There are thousands and thousands and thousands of retailers that sell flat-screen TVs. There are roughly 50 companies that make the panels. There are only three guys that make the glass."
• Transocean (RIG) - it owns one-third of the world's supply of deepwater drilling rigs, and has a $40B backlog - the size of its market cap.
• HMOs - WellPoint Health Networks (WLP), UnitedHealth (UNH) and Aetna (AET) have been over punished.
• SLM (SLM) - "Probably 95% of its loans are government-guaranteed and the stock sells at 10 times earnings. A year ago, a private-equity firm wanted to buy Sallie for $60. You can buy it now at $18."

Comments

[Vick]

Nice post, Eli.

I agree with some of the picks above and I personally picked up UNH in low 20s. GLW is positioned quite well for the future as I see most retails stores continuing to push LCDs or Plasmas and it is a matter of time for GLW to turnaround.

[Sheff22]

I agree that the market is near bottom. Some more fluctuation is to be expected. If "buy low, sell high" has validity, now is probably a good time to buy. The problem is that it's a lot harder psychologically to buy when the market is low versus buying in a market that is heading higher.

focusedintent.blogspot...

[Whidbey]

What is an investor to get from this article? There is nothing persuasive about "it is fairly valued" by whom and based on what? History, or forward looking forecasts. I am expecting a fall into the autumn and I suspect things get worse into the elections since Congress seems to be indifferent to energy and loves the idea of another housing give-away. Then there is the dollar. Why don't we get factual and think as AS says above do some "critical thinking".

[mouth]

I t sounds like that threw darts at a list of stocks and these were the ones they hit

[mouth]

It sounds like they threw darts at a list of stocks and this is the stocks that they hit. It is as good as anything else out there

[Did U Think The Ponzi Scheme Would Last?]

The markets are a reflection of the economy and the economy has been propped up again and again by the gov't. Sorry, this is unsustainable and it will not be very long before we see a complete collapse.

Anyone that knows what a mania chart looks like will recognize that the Dow is a complete mania which tried to pop during dot bomb but which was reflated by Greenspan's low interest rates. Further enabled by Greenspan's virtual elimination of any reserve requirements placed on the creation of credit by banks, the price of the country's largest asset class (by far) - housing - soared to nosebleed heights. Money was taken out at the top and used to speculate in the markets. Now all of that is collapsing far worse than anyone was predicting just 6 months ago and it will get a lot worse than anyone has predicted so far. The gov't will try to stop this by creating money from thin air and doing helicopter drops into the economy in order to offset the destruction of credit.

Anyone watching this happens knows what it is, and will continue to do to the USD. Putting money into stocks at this point is stupid. The economy is melting down and so earnings will crash. Even if you are lucky enough to be in a stock that goes up in a bear market, you have to pay taxes on the gains. But the gains are likley to be related to inflation so all you are doing is taking a risk in the markets in order to pay taxes on inflation.

At the same time, boomers are looking at all this and wondering if their retirement savings really belong in such a place. Their 401ks are down at least 15-25% over the last 9 months and so it is worrisome to say the least. I suspect that there will be selling and redemptions into any strength and the pyramid scheme known as the stock markets will crash badly in the next 5 years.

This is no time to bet the farm on the markets. You will make more money shorting and smart people are buying long term puts, deep out of the money.

[Randy Fay]

This is a good article and odds are the upside is larger than the downside. This is more for the previous comment (mr Ponzi) - your post which illuminates your thinking to me is a solid contrarian indicator. The more people out there who think like you, the better prospects for the market.

[ValueHunter]

So it then must follow, that the more people think like Mr Fay, the worst the prospects for the market.

[johngonole]

I purchase Wellpoint a few months ago. So far so good. I agree with the HMO's. Beaten down fairly stable cash flows. Margins may expand and contract a bit but at this price good bet long term. Only real risk is OBAMA man. Don't mess too much with healthcare Mr. Obama or it will get worse and go the way of transportation, NASA, FEMA, the post office (can service get any worse), etc...

[User 117626]

all of the stocks shown have merit but so do many more that do not carry the problem of government cuts in payments.

[good time charlie]

Why does the man have to wear a beenie?

[JOETRADER]

BECAUSE HE IS BALL.

[markb]

Six winners? I only see four picks.

[markb]

Check that...3 HMOs.

[Blaze]

The smartest buy right now is in GLW, past two years has dropped at the same time and saw an August rebound. The stock should run to 27, if it breaks resistance at 27, then to 32 by October.

[Norman Lepoff, M.D.]

Mr. Hoffman, I agree.

[Stephjen]

so does Barrons mind that SeekingAlpha's main content from Sunday to Wednesday each week is quotations, paraphrases and review of their articles?

[Hardhead]

RIG and GLW - NOT YET!!! There is a lot more downside to both. GLW missed today and RIG is in a slump to 100. I agree the market looks attractively priced - provided our beloved politicians can be nice to the world for the rest of the year. With Apple beaten down on hotair, LLL with a solid report, and VLO with crack spreads increasing (with oil dropping (today is a freak show) to $70-80) are my buys.

HH