The Morning Brief: Cooperman on Netflix, First Data and Fees

September 01, 2016   Stephen Taub


Omega Advisors’ Leon Cooperman says he has closed out his position in Netflix, the streaming-video pioneer. This was a quick trade for Cooperman, who only got into the stock in the second quarter and owned 372,500 shares at the end of the period. "I think ultimately Netflix is going to work, but I think somebody buys the company at a nice premium," said the one-time Goldman Sachs partner in an interview Wednesday on CNBC. Cooperman is not the only high-profile hedge fund firm to bail out of the stock. In the second quarter, Chase Coleman’s New York-based Tiger Global Management liquidated its entire stake of nearly 18 million shares, which was by far its largest single U.S. long position at the end of the first quarter. These days the largest hedge fund shareholder of Netflix is SRS Investment Management, founded by Tiger Global Management alum Karthik Ramakrishna Sarma. SRS owned 2.38 percent of the shares at the end of the second quarter. So far, the decision to sell is not looking too good. The stock is up more than 6 percent since the end of the second quarter.

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Cooperman also addressed the decline in industry-wide assets and the pressure on high hedge fund fees. "You cannot charge a premium fee if you don’t deliver premium performance," he said in the CNBC interview. Cooperman also said he sold his stake in Citigroup, stressing other financials in his portfolio seem a little cheaper. "I think Citibank would work, will make money if interest rates will start to rise," he said. In general, he has cut his exposure to equities, to around 65 percent, stressing that he does not expect the market "to do that much on the upside." At the same time, he has about 8 to 10 percent of his assets in high-yield credits.

One stock the New York hedge fund manager did single out was First Data, the credit-card processor, noting that at nine times forward earnings it is trading at nearly half the market’s average multiple of 17 times. "Everybody is hung up on their balance sheet," Cooperman said. "The company’s got $19 billion of debt, virtually no maturing debt in the next five years. However, they generate a billion dollars a year in free cash flow. It looks to us to be extremely cheap." He also still likes Google-parent Alphabet, his largest long. He stressed it has a "fortress-like" balance sheet and a creative, innovative management team. Other favorites: airlines and retailer PVH.

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Two ex-Cargill honchos are launching their own commodity-oriented hedge fund, according to Reuters. Mark Schulze and Jason Vogt, who had previously worked as senior portfolio managers for Cargill’s Black River Asset Management, have created Minneapolis-based Twin Harvest Capital Partners. They plan to start trading next year with about $100 million, according to the report citing a person who requested anonymity. The pair plans to trade futures and options on agricultural products. Reuters points out that Black River shut down several of its hedge funds in 2015 and spun out three remaining strategies earlier this year.

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Shares of Valeant Pharmaceuticals International fell another 4 percent on Wednesday. The embattled drug maker’s stock is down about 6 percent over the past four trading days.


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