At the close of a difficult September in the market, billionaire investor Leon Cooperman issued a new warning for investors this week.
The S&P 500 lost -4.6% in September, the Dow dropped -3%, while the tech-heavy Nasdaq slipped -6.5% lower for the month.
And at the end of such a rough month, Cooperman has some thoughts about what’s next for the stock market – or what he says is really three stock markets.
One of which is the FAANG market. The tech heavyweights—Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), and Google-parent Alphabet (NASDAQ: GOOGL, GOOG)—have all risen far higher off the market’s March bottom, but all lost in the double-digits this month. Facebook slipped -11.4%, Amazon -10%, Apple -13.4%, Netflix -10%, and Alphabet -11.5%.
“Those stocks, to a degree, are better than gold. They are selling at very rich valuations, but if you look at interest rates, they’re not expensive,” Cooperman, who holds a large position in Alphabet and Microsoft (NASDAQ: MSFT), as well as smaller positions in Amazon and Facebook, said.
However, the concentration seen in these tech names is reminiscent of other such groupings, including the Nifty 50 large-cap stocks of the 1970s, which Cooperman says have high failure rates.
Cooperman said that a 20% failure rate “would do a lot to sterilize the successful ones,” and added that he wouldn’t be surprised to see an excess profit tax imposed on the beneficiaries of the coronavirus pandemic.
Another market Cooperman sees right now is what he calls the “Robinhood” market, referring to the free stock brokerage app where young retail investors have been bidding up bankrupt or struggling companies like Hertz (NYSE: HTZ), American Airlines (NASDAQ: AAL), and Kodak (NYSE: KODK) amid the pandemic.
“Look, Carl Icahn is no fool. He’s a brilliant guy. He’s done a fabulous job in running his own financial affairs. He sold his mistake in Hertz [for] $0.72 a share,” Cooperman said. “Three weeks later, the Robinhood guys take it for five bucks. I don’t pay any attention to that market, it’ll end in tears.”
The third market is the rest of the broader stock market.
“The rest of the market,” Cooperman added, “there’s plenty of value there, and you just got to manage your risk accordingly.”