Cooperman Says Stocks May Rise After `Bulk of Damage'

By Eric Martin

Oct. 7 (Bloomberg) -- The stock market is ``not as bad as some portray'' because shares have already suffered the worst of a U.S. recession and will rally before the economy emerges from its decline next June, hedge fund manager Leon Cooperman said.

``The bulk of the damage is done, the healing process will take time, but excellent opportunities are developing in the market,'' Cooperman, 65, who manages $6 billion as chairman and chief executive officer of hedge fund Omega Advisors Inc., said at the Value Investing Congress in New York. ``This is the most difficult financial environment I've lived through. Every recession sows seeds of the next recovery.''

Cooperman said the drop in home prices should be over by the end of the year and stocks are ``quite reasonable'' based on price-to-earnings ratios. The Federal Reserve will probably support the slowing economy with interest rate cuts, he added.

The S&P 500 has tumbled 36 percent from its record last October. The gauge is valued at 11.9 times estimated earnings of its companies over the next 12 months.

Trading in fed funds futures imply that a rate cut of at least half a percentage point at the central bank's next meeting is certain, while the odds of a 0.75 percentage point reduction are 32 percent. The Fed's target rate for overnight loans between banks is 2 percent.

Earnings Decline

Stock advances may be limited until the market fully reflects the slowdown in earnings, Cooperman said. Profits at S&P 500 companies fell 5.6 percent in the third quarter from a year earlier, according to analyst estimates compiled by Bloomberg. That would be the fifth straight quarterly decline and match a streak ended in March 2002.

``The best evidence that the correct economic scenario is discounted in the market is when individual stocks don't go down in response to earnings disappointments,'' Cooperman said. ``We're not seeing very much of that at all.''

Cooperman told Barron's in its July 28 edition that the stock market may be near its low. The S&P 500 has dropped 21 percent since then.

Cooperman founded Omega in 1991 after working at Goldman Sachs Group Inc. for 25 years.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.