Benchmark-Relative Value Screen
Demand more growth, assets, or income at a better valuation than the index
- Difficulty
- Advanced
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 96%
Omega begins by describing what an investor already receives from the S&P 500: its growth, dividend yield, debt-to-capital ratio, book-value multiple, and earnings multiple. Each candidate must then offer a superior proposition. Cooperman looks for more growth at a lower multiple, more underlying asset value at a lower valuation, or more income at a more attractive valuation. The mechanism treats the index as the opportunity cost and uses several routes to value rather than one universal ratio. It also exploits the stock market's heterogeneity: companies can carry radically different implied valuations even when the broad index looks fully priced. The screen identifies candidates for deeper work; it does not replace company-specific research or assessment of why the discount exists.
Origin
Cooperman calls Omega's game simple while explaining how the firm compares individual securities with the S&P 500's prevailing value proposition.
Core principles
- 01The broad index defines the opportunity cost for each stock idea.
- 02A candidate should improve growth, asset value, or income without demanding a richer valuation.
- 03Heterogeneity within equities creates opportunities that homogeneous credit markets may not offer.
- 04Fundamental value, not low price alone, determines attractiveness.
How to run it
- 1
Describe the benchmark
Record the index's expected growth, income yield, leverage, asset valuation, and earnings multiple. Use current, consistently defined measures.
Pro tip Treat the index as an investable alternative, not merely a reporting yardstick.
Watch out A stale benchmark snapshot creates a false hurdle.
- 2
Test the growth route
Compare the candidate's defensible growth with its earnings multiple and the benchmark's. Look for more growth without paying a higher valuation.
Watch out Forecast growth is not valuable when it depends on heroic assumptions.
- 3
Test the asset route
Estimate the underlying value of the company's assets and compare the market valuation with both that value and the benchmark. Investigate why the gap exists.
Pro tip Use asset measures suited to the actual business.
Watch out Reported book value can overstate realizable value.
- 4
Test the income route
Compare sustainable income with the price paid and the benchmark's yield. Confirm that distributions do not weaken the business.
Watch out A high yield can be evidence of distress rather than value.
- 5
Advance only real advantages
Require a clear relative advantage on growth, assets, or income, then perform full fundamental and downside work. Reject candidates whose apparent discount cannot survive scrutiny.
Pro tip State exactly which benchmark dimension the candidate improves.
Watch out The screen identifies research priorities, not automatic purchases.
In the wild
An analyst records the index's earnings multiple, yield, leverage, and expected growth, then compares an industrial company. The company advances only if conservative estimates show stronger growth at a lower multiple, assets worth materially more than the quoted price, or sustainable income at a superior valuation.
→ The analyst frames the stock as an improvement over the index rather than calling it cheap in isolation.
Common mistakes
Calling low price value
A depressed quotation is not enough; the security must offer a defensible advantage relative to its underlying economics and benchmark.
Using one ratio for every company
Growth, assets, and income create different routes to value and require business-appropriate measures.
Skipping the deep dive
A favorable screen can conceal deteriorating fundamentals or a justified discount.
Is it for you?
Best for
It is best for fundamental equity investors comparing individual companies with an investable benchmark.
Not ideal for
It is not ideal as a mechanical screen without business-quality, balance-sheet, and downside analysis.
From the transcript
“We try to find more growth at a lower multiple, more underlying asset value than the market has at a lower evaluation, more income than…”
“The stock market is heterogeneous.”
From the episode
Omega Advisors Leon Cooperman: Masters in Business (Audio)
Leon Cooperman