We recently published a list of Billionaire Lee Cooperman says the market is expensive, but these 10 stocks are cheapIn this article, we will look at how Mr. Cooper Group Inc. (NASDAQ:COOP) compares to other cheap stocks.
Leon Cooperman recently laid out his conservative economic forecast and talked about stocks he’s watching in a CNBC interview. He believes the U.S. is headed for financial disaster because of a lack of attention to rising debt. He also noted that nothing seems overvalued when a 10-year bond is priced at the current rate.
“My assumption is that we are heading for a fiscal catastrophe in our country. No one in the economy is focused on taking on debt. My second assumption is that nothing is overvalued when a 10-year bond is at the current interest rate of 3.9%.”
Cooperman compared this to the Nifty-Fifty period of 1972, when government bonds were at 6.5% and several companies with high earnings multiples eventually went bust. He pointed out that these companies were acquired by JP Morgan despite their high valuations.
“In the Nifty Fifty period of 1972, government bonds rose 6.5%, Avon Products was at 65x earnings and went bankrupt. Eastman Kodak went bankrupt at 48x earnings. IBM went bankrupt at 37x earnings. These are companies that are being actively bought up by JP Morgan in the US.”
Cooperman stressed that with the 10-year yield at 3.932 percent, nothing seems overvalued. He expects interest rates to remain low and expects the Federal Reserve to cut rates in September, probably by 25 to 50 basis points. He expects this to lead to a slow positive movement in the yield curve, with the yield on 10-year bonds rising and their price falling.
Leon Cooperman also mentioned that he considers the current environment to be more of a “stock market” than a unified stock market. In addition, he expressed concern about the health insurance sector, noting that these companies are trading at low multiples despite generating excess capital and buying back their own shares. Cooperman then emphasized that he is guided by valuation levels when evaluating investments.
Leon Cooperman follows a value-oriented investment strategy, focusing on undervalued stocks and using a top-down approach to selecting sectors. He combines fundamental analysis with a bottom-up approach to constructing and managing portfolios. Omega Advisors, which manages over $3.3 billion in assets, most of which come from Cooperman’s own wealth, manages approximately $4.37 billion for seven clients. The firm’s first-quarter 2024 13F report showed $2.4 billion in securities under management, with the top 10 holdings accounting for 61.09% of the portfolio.
Our methodology
In this article, we review Leon Cooperman’s recent CNBC interview and highlight ten stocks he owns and has mentioned. We’ve also provided analyst ratings, key details about each company, and the number of hedge funds investing in them.
Why focus on the stocks hedge funds invest in? Our research shows that if you follow the top picks of leading hedge funds, you can generate returns that beat the market. We use this strategy in our quarterly newsletter, where we select 14 small-cap and large-cap stocks each quarter. Since May 2014, this approach has produced a return of 275%, beating the benchmark by 150 percentage points. (Further details can be found here)
A direct-to-consumer customer checks his mortgage account online.
Mr. Cooper Group Inc. (NASDAQ:COOP)
Number of hedge fund investors: 33
Mr. Cooper Group Inc. (NASDAQ:COOP) is a major player in the mortgage industry, offering mortgage servicing, mortgage origination and asset management services. The current low interest rate environment benefits the mortgage sector by encouraging refinancing and new mortgage originations. As interest rates remain favorable, Mr. Cooper Group Inc. (NASDAQ:COOP) is well positioned to capitalize on these increased opportunities.
Recently, Nationstar Mortgage Holdings Inc., a subsidiary of Mr. Cooper Group Inc. (NASDAQ:COOP), announced a $750 million offering of 6.5% senior notes due 2029. These notes have an annual interest rate of 6.5% and will mature on August 1, 2029.
Diamond Hill Select Strategy stated the following about Mr. Cooper Group Inc. (NASDAQ:COOP) in its second quarter 2024 investor letter:
“Our largest single contributors in the second quarter included Amazon, Texas Instruments and Mr. Cooper Group Inc. (NASDAQ:COOP). Mortgage servicing company Mr. Cooper Group is benefiting from a high-yield environment that is increasing the profitability of the mortgage servicing business.”
Jay Bray, Chairman, President and CEO of Mr. Cooper Group, shared this during the last conference call:
“In the second quarter, pretax operating income was $219 million, up 46% year over year. Operating ROTCE was 15.3%, up nearly 400 basis points year over year. At the end of last year, we said we expect ROTCE in the range of 14% to 18% in 2025.
We’re pleased to be in that range already, and we’re optimistic about our momentum for next year. I’m super excited about the 17% year-over-year increase in TBV, which reached $68.67 at the end of the quarter. This was a function of earnings plus share repurchases, which reduced share count by 4% last year and a total of 35% since inception. The Board authorized an additional $200 million for share repurchases. I’d like to add that despite share repurchases and asset growth, we’ve maintained a rock-solid balance sheet, with our capital ratio still above our stated target range and we have ample liquidity. Moving on to operations, the servicing team delivered fantastic results with pre-tax income of $288 million, a massive 58% increase year-over-year.
These results reflect strong growth, with the portfolio ending the quarter at $1.2 trillion, along with exceptional efficiency gains. In fact, one couldn’t ask for a better demonstration of operating leverage. Now we turn to originations, where the environment remains challenging. Pretax operating income was $38 million, which was at the high end of our guidance, thanks to strong execution in both our DTC and correspondent channels. Now let’s turn to Slide 4 and walk you through the Flagstar transaction. We announced that we are acquiring Flagstar’s $1.4 billion mortgage business in a cash transaction. This is a simple transaction structure as it is an asset acquisition, not a business combination. The assets include Flagstar’s MSRs and advances totaling $1.2 billion, its subservicing business with total UPB of $270 billion, and a third-party lending platform.
In addition, we will service $9 billion of Flagstar loans that remain on their balance sheet. The total amount of UPB is approximately $356 billion. The acquisition will be funded with cash and MSR lines of credit. Flagstar’s servicing operations will be integrated into our platform in a quick, efficient and thoughtful manner.”
Total COOP 7th place on our list of cheap stocks to buy. While we recognize COOP’s potential as an investment, we believe that under-the-radar AI stocks offer greater prospects for higher returns, and in a shorter time frame. If you’re looking for an AI stock that’s more promising than COOP but trades at less than 5x earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
