Leon Cooperman is one of those investors who always seems to make the right moves. Others watch his strategies with admiration and curiosity.
The attention is certainly well deserved…
Cooperman has served as a partner at Goldman Sachs (GS), where he ultimately ran their asset management division for a number of years. He then founded an investment partnership, Omega Advisors, in 1991.
He was also voted the No. 1 portfolio strategist in the Institutional Investor All-America Research Team survey… for nine consecutive years!
Cooperman has seen just about everything over his five-decade career, and he certainly capitalizes on that experience with smart moves and surprisingly valuable trades.
It’s no wonder everyone wants to know what he’s doing.
Well, lately, while the investing herd is trying to escape the energy sector, Cooperman has been investing millions into its potential revival.
And he’s focusing on one play in particular…
Who’s Cooperman’s Latest Darling?
Cooperman has access to all types of information about all types of master limited partnerships (MLPs) and energy stocks… access that 99% of investors can’t touch.
So, when he pours millions into something, I want to know what it is – and why. Better still, I want to be able to get in at prices close to what he’s paying.
Now, Cooperman has recently been interested in an energy MLP called Atlas Energy, L.P. (ATLS), which is currently sporting a 7.5% dividend yield and is trading at levels 80% below its 52-week high.
I think there’s much more behind Cooperman’s interest in Atlas than a strong dividend, however…
In fact, buying Atlas for the dividend may be the wrong reason, as it might not even exist in its current form a couple of months from now.
You see, Atlas is being acquired by Targa Resources (TRGP), a natural gas provider. The deal is for .1809 shares of Targa stock, plus $9.12 in cash, and a pro rata share in 100% of Atlas’ distributed non-midstream assets.
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These assets consist of rights in Atlas’ exploration and production subsidiary, Atlas Resource Partners (ARP); logistics businesses; and production of natural gas at Atlas’ Arkoma Basin wells.
If you add the numbers up, based on the current share price of Targa, the deal is worth around $25 per.
Atlas is currently trading for around $27.50. This implies that the shareholders of the new entity will receive all of the other assets for around $2.50 per share.
Cooperman believes that this price is a bargain relative to the value of the assets and the cash they spin off. And he’s putting down some serious cash on the bet…
Trusting the Leader
Since October, Cooperman has spent more than $20 million buying up units of ARP at prices both higher and lower than the current level.
Keep in mind that, at the time the merger was announced, Targa was valuing the deal at more than $33 per share (Targa was trading at $135 at the time), not counting the non-midstream assets. And the market was valuing the deal at close to $40 per share.
Prices have dropped since then, following the rest of the market. But Atlas does control pipelines, storage, and non-midstream assets. It’s not a producer, so it’s less governed by oil prices and influenced more by the less-volatile aspects of energy.
The velocity of this crash is still staggering to witness. And calling a bottom is never a good idea when so much of the fall in prices has been caused by well-timed and well-placed rhetoric.
But in the rubble of the crash, there are always interesting, potentially profitable, and misunderstood situations where assets are truly cheap.
The Atlas-Targa deal may well be one of those.
And the chase continues,