We recently compiled a list where billionaire Lee Cooperman says the market is expensive but these 10 stocks are cheap, and in this article we'll take a look at how Elevance Health, Inc. (NASDAQ:ATAI) ranks against other cheap stocks.
Leon Cooperman recently gave a CNBC interview where he shared his conservative outlook on the economy and the stocks he is watching. He believes the U.S. is heading for financial collapse due to a lack of attention to growing debt. He also noted that as long as 10-year Treasury bonds are valued at their current rates, nothing seems overvalued.
“My guess is that we're heading for fiscal collapse. Nobody is paying attention to the debt creation in the economy. My second guess is that if the 10-year Treasury is worth the current 3.9% interest rate, then nothing is overvalued.”
Cooperman compared this to the Nifty Fifty era of 1972, when Treasury yields were 6.5% and companies with high earnings multiples ultimately went bankrupt. He noted that these companies were bought by JP Morgan despite their high valuations.
“During the Nifty Fifty in 1972, government bonds rose 6.5% and Avon Products declared bankruptcy at 65 times earnings. Eastman Kodak declared bankruptcy at 48 times earnings. IBM declared bankruptcy at 37 times earnings. These are companies that JP Morgan is actively buying up in the US Trust.”
Cooperman emphasized that with the 10-year Treasury yielding 3.932%, nothing is overvalued. He expects interest rates to stay low and sees the Federal Reserve cut rates, perhaps by 25 to 50 basis points, in September. He expects this to lead to a moderate positive movement in the yield curve, causing the 10-year Treasury yield to rise and prices to fall.
Leon Cooperman also said he believes the current environment is more of an “equity market” than a consolidated stock market. He also expressed concern about the health insurance sector, noting that these companies are trading at low multiples even though they are generating excess capital and buying back their own shares. Cooperman also emphasized that valuation levels are important when evaluating investments.
Leon Cooperman employs a value-focused investment strategy, concentrating on undervalued stocks and taking a top-down approach to sector selection. He combines fundamental analysis with a bottom-up approach to construct and manage his portfolio. Omega Advisors handles over $3.3 billion in assets, primarily from Cooperman's own assets, and manages approximately $4.37 billion for seven clients. According to the firm's Q1 2024 13F filing, it has $2.4 billion in securities under management, with its top 10 holdings making up 61.09% of the portfolio.
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Our Methodology
In this article, we review Leon Cooperman's latest CNBC interview and highlight the 10 stocks he owns or mentioned, along with analyst ratings, key details about each company, and the number of hedge funds invested in them.
Why care about stocks where hedge funds invest? Our research shows that following the top picks of the biggest hedge funds can lead to market-beating returns. We use this strategy in our quarterly newsletter, where we select 14 small and large stocks each quarter. Since May 2014, this approach has generated a 275% return, beating the benchmark by 150 percentage points. (Learn more)
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Elevance Health, Inc. (NASDAQ:ATAI)
Number of hedge fund investors: 79
Elevance Health, Inc. (NASDAQ:ATAI), formerly Anthem, is a leading U.S. health insurer with a strong presence in individual, group and government-sponsored health plans. Elevance Health, Inc. (NASDAQ:ATAI) is expanding its market reach and improving its services by investing in technology, data analytics and new products. These efforts have significantly expanded its member base and strengthened its competitive position.
In July 2024, Elevance Health, Inc. (NASDAQ:ATAI) acquired BioPlus, a leading specialty pharmacy provider, to enhance its pharmacy services and more effectively manage complex drug therapies. Elevance Health, Inc. (NASDAQ:ATAI) also partnered with LifePoint Health to improve access to quality healthcare in rural and underserved areas by integrating its services with LifePoint's hospital network. In addition, in August 2024, Elevance Health, Inc. (NASDAQ:ATAI) launched Elevance Connect, a digital health platform that provides personalized health management tools, virtual care services, and advanced data analytics to further enhance its service capabilities.
Analyst Marcel Knoop maintains a Buy recommendation on Elevance Health, Inc. (NASDAQ:ATAI), despite a modest 2% upside potential. Knoop is optimistic for two main reasons. First, Elevance Health, Inc.'s (NASDAQ:ATAI) 6% free cash flow yield and mid-to-high single-digit growth forecasts give investors the potential for low double-digit returns. Knoop believes that for long-term investors, a stock's valuation is less important than its future return potential. Second, Knoop's analysis uses conservative growth projections, which gives him hope for better-than-expected performance.
In its Q2 2024 investor letter, Baron Health Care Fund said the following about Elevance Health, Inc. (NYSE:ELV):
“We added to our holdings in Elevance Health (NYSE:ELV), a leading managed care company. We believe Elevance Health is well positioned to achieve double-digit earnings growth, driven by its growing medical services business. Managed health care stocks remain depressed due to concerns surrounding Medicare Advantage utilization and reimbursement. The lack of near-term visibility into utilization trends was exacerbated by the Change Healthcare cyberattack, which disrupted payers' normal utilization review and claims adjudication processes, while new CMS rules are limiting lower-cost inpatient observation stays and encouraging full hospitalization. We believe our managed care holdings are likely to perform well in the second half of the year as investors look to 2025.”
“With a more balanced membership mix, Elevance Health has unique and unappreciated growth drivers, including continued PBM and specialty pharmacy expansion and continued growth in Careron services. After two years of unfavorable Medicare Advantage rate changes under the Biden Administration, we believe a Republican victory in the next election could create a more favorable environment for Medicare Advantage companies.”
Overall, ATAI ranks #4 on our list of cheap stocks to buy. While we acknowledge ATAI's potential as an investment, we believe that lower profile AI stocks have a better chance of delivering higher returns in the short term. If you're looking for AI stocks that are more promising than ATAI but trade at less than 5x stock price, check out our report on the cheapest AI stocks.
Read next: The $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and NVIDIA Has “Become a Wasteland” According to Jim Cramer.
Disclosures: None. This article was originally published on Insider Monkey.
