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 less than two dozen holdings 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. But the fund has faltered recently, having made some seemingly risky big bets. Berkowitz has some controversial holdings, such as Florida real estate company St. Joe (NYSE: JOE ) . The stock got a lift a few months ago on some executive turnover and speculation about a buyout, and it's up 11% over the past year. Its second-quarter earnings report featured revenue up 20% and a return to profitability.
The company's reportable stock portfolio totaled $6.9 billion in value as of June 30, 2012. Its top three holdings are AIG, representing a whopping 41% of the portfolio, Sears Holdings, with 15%, and Bank of America, at 12%.
So what does Fairholme's latest quarterly 13F filing tell us? Here are a few interesting details:
Fairholme's only new holding is a small stake in Hartford Financial Group (NYSE: HIG ) warrants. The company has struggled in this low-interest-rate environment, and its recent quarterly earnings report featured revenue and earnings down sharply. In a conference call, management noted that $500 million of stock had been bought back, and added, "We are diligently exploring opportunities to reduce the size and risk of our annuity exposures, isolate or separate them from the ongoing businesses and, over time, free up associated capital."
Among the few holdings in which Fairholme increased its stake, albeit slightly, was Jeffries Group. Jeffries is partially owned by Leucadia (another major Fairholme holding). My colleague Michael Lewis has called Jeffries "a phenomenal bank," adding, "Jefferies also hired aggressively, poaching top talent from shops such as Pimco and Deutsche Bank. With revenues on the rise, Jefferies can be an incredible value driver for Leucadia."
Fairholme reduced its stake in companies such as bond insurer MBIA (NYSE: MBI ) and Berkshire Hathaway (NYSE: BRK-B ) . MBIA hasn't been in the best of health lately, with its businesses whacked by the recent financial crisis. Its revenue and earnings have been up and down in the last few years, and its stock has fallen more than 60% over the past year. Adding insult to injury, the New York State Department of Financial Services said it might force the company to delay making an interest payment on its debt. That wouldn't be a formal default, but it's not good news, either. When market conditions improve, though, MBIA stands a good chance of turning itself around.
Berkshire Hathaway, meanwhile, has gained about 18% over the past year, and a recovering economy will benefit many of its businesses, such as its massive Burlington Northern railroad, which transports goods across the country, and its many housing-related companies (involved in furniture, flooring, paint, bricks, home sales, and even manufactured homes). To some of our analysts, the stock looks cheap.
Finally, Fairholme unloaded a couple of companies, including Regions Financial (NYSE: RF ) . The bank looks rather attractive on many counts, having repaid its TARP obligation, posting improving financial numbers, and with a powerful presence in the growing Southeast region. It has competition there, though, such as from Wells Fargo, which bought Wachovia.
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. 13F forms can be great places to find intriguing candidates for our portfolios.
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