Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.
Today, let's look at investing giant Bruce Berkowitz. He's the founder of Fairholme Capital Management, which oversees three mutual funds of interest: The flagship Fairholme Fund (FAIRX) seeks long-term growth of capital, the Fairholme Focused Income Fund (FOCIX) seeks current income, and the Fairholme Allocation Fund (FAAFX) seeks long-term total return. The funds are all rather focused, each owning no more than several dozen stocks instead of the hundreds that many funds own. The Fairholme fund has many admirers, and Berkowitz was named Morningstar's fund manager of the decade in 2010. Interestingly, the Fairholme Fund, which closed to new investors earlier this year, has just reopened.
The company's reportable stock portfolio totaled $7.7 billion in value as of June 30, 2013. Its biggest holdings are American International Group, Bank of America, Sears Holdings, St. Joe, and Leucadia National (NYSE:LUK) -- and fully 50% of assets are in AIG!
So what does Fairholme's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Hartford Financial Services (NYSE:HIG) and Lincoln National. Hartford has been getting out of the annuities, retirement planning, and life insurance businesses as it becomes more of a pure property and casualty insurance company. Its second quarter featured widening net losses, but also an 18% gain in core earnings and management signaling confidence via a 50% dividend hike and an increase in its stock-buyback plans. Its CEO also noted price increases in its property and casualty insurance. Hartford stock has been volatile, but some see it as undervalued now, with a forward P/E ratio of just 9 and a dividend yield around 1.9%. Others don't like its sizable debt load.
Among holdings in which Fairholme Capital Management increased its stake was Genworth Financial (NYSE:GNW). It looks appealing with its forward P/E ratio near 8, well below its five-year average. Bulls like its selling off its wealth management business -- and that it may also exit the long-term care insurance business, too, if it doesn't win rate increases. (Genworth and John Hancock are the two big players left in the business.) Genworth has been cutting costs via downsizing, and is poised to benefit from a rebound in housing, as it insures mortgages. Some worry, though, that tightening lending standards may result in less need for its insurance. The company recently reported second-quarter net operating income up 93% over year-ago levels, but analysts had expected even better numbers.
Fairholme Capital Management reduced its stake in lots of companies, including Chesapeake Energy (NYSE:CHK) and Berkshire Hathaway. Chesapeake is finally under new management, and has been shedding assets to help it pay down debt while also aiming to boost production. (The new management is also shedding some old management.) It's poised to profit from rising natural gas prices. And some big investors, such as Carl Icahn, are bullish on it. Icahn recently boosted his stake in the company to 10%. Icahn is an activist investor who often agitates for changes at companies, including at Chesapeake.
About a dozen of the portfolio's holdings were left essentially unchanged. These include Leucadia National, which recently merged with Jefferies Group. In June, Jefferies reported a 27% drop in fixed-income trading revenue, reflecting a lackluster bond market. Still, Leucadia has its fans, who like its valuation, among other things. (The stock's forward P/E was recently below 6.) The company's second quarter featured revenue up 55%.
Finally, Fairholme's biggest closed positions included MBIA (NYSE:MBI) and Canadian Natural Resources. MBIA has an even lower forward P/E than Leucadia, recently at 3.4, and has been enjoying some lucrative time spent in courtrooms, such as with a court decision against Bank of America. MBIA has some exposure to Detroit's debt, though, and some see it not resuming former growth rates despite its improving condition. The company's second quarter featured a net loss, vs. a net profit a year ago.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13-F forms can be great places to find intriguing candidates for our portfolios.
Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Berkshire Hathaway. The Motley Fool recommends and owns shares of American International Group, Bank of America, and Berkshire Hathaway and has the following options: long January 2014 $25 calls on American International Group and long January 2014 $30 calls on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.