Cooperman is buying the dip in one stock this week. Here’s why.
Nervousness about the spreading of COVID-19 helped stocks end down for the third day in a row Wednesday.
The S&P 500 ended the trading day down -0.4%, bringing its losses for the week thus far to -6%. The Dow fell -0.46%, bringing its losses for the week to -7%. And while the Nasdaq ended the day in the positive with a gain of 0.17%, the index is still down just over -6% so far this week.
Investors have been spooked as the coronavirus has spread to 37 countries with confirmed cases now topping 81,000, and as more companies warn that the outbreak will hurt earnings. Meanwhile, U.S. health officials have warned that the virus will turn into a global pandemic and have told Americans to prepare for the disease to spread in the U.S. where there are currently just 60 confirmed cases.
But as stocks struggle amid fears about the rapidly spreading virus, billionaire investor Leon Cooperman said this week that he’s using the opportunity to add to his position in at least one stock: United Airlines (NASDAQ: UAL).
United shares have been battered so far this year as investors have fled airline and travel stocks. The stock is down nearly -25% year-to-date, and is down -16% this week alone after the airline pulled its full-year financial outlook on Monday citing uncertainty surrounding the spread of the coronavirus outbreak.
“Beyond the first quarter, we believe the range of possible scenarios is too wide to provide earnings guidance at this time,” the company said in a filing with the SEC, adding that its canceled flights to China won’t impact its first quarter earnings thanks to savings on declining fuel costs and other cuts.
However, Cooperman said that he’s been a “net buyer” in the last few days as he’s seeing “a lot of value in the market” as fears about the virus outbreak have grown.
Cooperman, chairman and CEO of Omega Family Office, has been a longtime United shareholder and he’s viewing this week’s weakness in the market as a buying opportunity.
“I’m doing a little bit every day,” Cooperman said. “Look at United Airlines: they came out with their commentary, the stock is trading at six times what they expect to earn this year. They took out guidance because they can’t give you guidance until they know what happens with the virus.”
“They’ve bought back close to 40% of their company in the last 5 to 6 years at attractive prices. They generate substantial free cash flow. And its a 6 multiple stock. So, I have a large position and I added a bit to that one,” Cooperman said of United.
While investors fear that the coronavirus could hurt global manufacturing and consumption, spurring the plunge in equity prices this week, Cooperman added that this week’s correction is “healthy for the market” and “took out some of the euphoria.”
“We’ve taken some air out of the bubble and that’s constructive,” he said.
Cooperman concluded that if you believe the virus will be “history” as temperatures warm up, there’s little reason not to buy stocks at a discount.
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