Every quarter, many money managers have to disclose what they've bought and sold, via "13-F" 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), which seeks long-term growth of capital; the Fairholme Focused Income Fund (FOCIX), which seeks current income; and the Fairholme Allocation Fund (FAAFX), which 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 again when it reported some strong quarterly results.
Fairholme's reportable stock portfolio totaled $7.0 billion in value as of Sept. 30, 2012.
So what does Fairholme's latest quarterly 13-F filing tell us? Here are a few interesting details.
Fairholme didn't entirely sell out of any positions, and its new holdings are warrants in General Motors (NYSE:GM) and Lincoln National (NYSE:LNC). General Motors' last year was the most profitable one ever, and its new offerings have been well received. In China, for example, sales were recently up 14% over year-ago levels. But competition remains tough, weakness in Europe is hurting it, and it has been losing market share in the United States. Even China is worrisome, as its product mix there isn't the best fit for local tastes.
Insurer and financial services company Lincoln National recently reported third-quarter results, featuring book value per share rising 7%, net income more than doubling, and more than $100 million spent repurchasing shares. The company has also signaled confidence in its future with a 50% dividend hike.
Among holdings in which Fairholme increased its stake was Wells Fargo (NYSE:WFC), one of the largest banks around, and a giant in U.S. mortgages as well. The company has found much success by focusing on simple, traditional banking services. My colleague Matt Koppenheffer likes its focused strategy and its balance sheet, which seems healthier than those of many of its peers.
Fairholme reduced its stake in CIT Group (NYSE:CIT) and Jefferies Group (NYSE:JEF). CIT Group recently posted disappointing earnings partly because of hefty debt-refinancing charges. The company has been working on strengthening its position, with some expecting that it might end up acquired. Its CEO, John Thain, the former CEO of Merrill Lynch, noted , "We achieved several strategic milestones this quarter that will lower our funding costs and better position CIT for future profitability."
Investment banking concern Jefferies, meanwhile, is being acquired by Leucadia National (NYSE:JEF). Leucadia is well regarded and has made some smart deals over the years, though our analysts don't love that this purchase is being made with stock that isn't exactly richly valued.
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, and 13-F forms can be great places to find intriguing candidates for our portfolios.