Leon Cooperman loves stocks — even if the economy isn't going anywhere — but doesn't hold the same affection for government bonds, though that's where investors have been putting most of their money.
The veteran investing guru and chairman at Omega Advisors believes growth will continue at a modest pace, but stocks will climb because they're underpriced and supported by several factors.
Four reasons stand out: The unlikely chance of a recessionand a corresponding bear market; supportive monetary policy from central banks; valuation, with Standard & Poor's 500 stocks trading at a historically low 12.5 price multiple against earnings; and investors' general willingness to take on risk.
"Stocks are cheap against inflation, they're cheap against their own history, they're cheap against interest rates, they're allowing for slower secular growth and they're allowing for lower interest rates," Cooperman said during a presentation at the "Delivering Alpha" conference presented by CNBC and Institutional Investor.
That's a good thing, considering where growth is likely headed.
"The economy is OK, not great," he said. "The growth is too slow to reduce unemployment, so we're going to continue to be in a slow-growth environment."
Cooperman is not alone in forecasting slow economic growth but good stock marketperformance. Bank of America Merrill Lynch believes growth is tracking at 1.1 percent for the second quarter and won't get much better through the year, but is holding to a 1,450 S&P 500 target.
In an appearance at the 2011 version of conference, Cooperman offered up a strong menu of recommendations for investors.
He advocated a broad play on U.S. equities, and recommended buys on Apple , Qualcomm, Sallie Mae and KKR Financial Holdings, all of which ended the year higher. His only loser was Boston Scientific.
This time around he doubled his selections, and he said he could offer even more.
His favorites (chart with tickers below): AIA Group, Capital One Financial, Express Scripts, Gannett, Halliburton, Kinder Morgan, Metlife, Qualcomm, Watson Pharmaceuticals and Western Union.
"I have so many more I could give you," he said. "I just find myself limited by recognition of the macro risk environment."
Among the factors that hold back his enthusiasm are the usual suspects: The European debt crisis, uncertainty over the U.S. presidential election, and dangers of the American "fiscal cliff," a term used to describe the tax increases and spending hikes that will take effect automatically if Congress fails to reach deficit-reduction targets by the end of 2012.
"It might require patience," Cooperman said. "It's very hard for a youthful 69-year-old person to preach patience."
So while Cooperman advises investors to load up on stocks, he thinks they should avoid one asset class: U.S. government debt, despite the strong flows to the group.
Investors added $1 billion to stock-based mutual funds in the first half, while putting $130 billion in bond funds.
Cooperman thinks the trade is overdone, especially considering the anemic yields that government debt delivers.
"U.S. government bonds are to be avoided," he said. "They are a very unattractive asset class."