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11 Reasons Billionaire Investor Leon Cooperman Is Worried About Long-Term Impacts Of COVID-19

11 Reasons Billionaire Investor Leon Cooperman Is Worried About Long-Term Impacts Of COVID-19

Despite a new model from the University of Washington’s Institute for Health Metrics and Evaluation projecting nearly 135,000 U.S. coronavirus (COVID-19) deaths by August, the SPDR S&P 500 ETF Trust (NYSE: SPY) has now rallied 16.2% over the past month.

The bullish price action has certainly created plenty of market skeptics, and billionaire investor and hedge fund manager Leon Cooperman is one of them.

11 Reasons To Be Skeptical

In an email this week, Cooperman listed at least 11 reasons why he is concerned about the long-term implications of the coronavirus outbreak:

  1. The unprecedented recent government stimulus and protections may have permanently increased the role government plays in the market, potentially increasing its regulatory oversight.
  2. The U.S. is shifting to the left on the political spectrum, a trend that will likely result in higher taxes.
  3. Low interest rates are a sign of an unhealthy economy, not a bullish stock market indicator.
  4. U.S. debt is growing much faster then the economy, so a higher percentage of our national income will need to be devoted to debt servicing.
  5. U.S. demand will likely be slow to recover given Americans will need some form of vaccination and/or proof of immunity to gain access to sporting events, concerts and other gatherings.
  6. Businesses will need to shoulder substantial compliance costs to ensure worker safety.
  7. Companies will need to issue a substantial amount of equity to replace lost capital.
  8. Stock buybacks, and the support they provided to EPS, are mostly over.
  9. U.S. profit margins were at a historic high in January, and they have historically reverted to their long-term mean over time.
  10. Credit is cheaper than stocks, with high-yield bonds (excluding the energy sector) yielding 7.25%, or about 14 times earnings.
  11. If Warren Buffett, the “greatest investor in my generation” can’t find stocks to buy on the dip, “who am I to be bold?”

See Also: What Is The Buffett Indicator?

Cooperman said he sees a fair value for the S&P 500 at around 17x earnings based on current interest rates.

“I apply that to normalized earnings of $150 and it gives me fair value of 2,550 presently (versus yesterday's close of 2,843),” Cooperman said.

Benzinga’s Take

Cooperman’s target for the S&P 500 certainly isn’t bullish, but it only implies about 12% downside from current levels. As of the end of 2019, Cooperman’s largest stock holdings were Fiserv Inc (NASDAQ: FISV), Alphabet, Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) and Cigna Corp (NYSE: CI).

Do you agree with this take? Email with your thoughts.

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