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 fewer 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 faltered in recent years, having made some seemingly risky big bets. Berkowitz has some controversial holdings, such as St. Joe (NYSE:JOE), the largest private landowner in Florida. The stock is up more than 40% over the past year, buoyed in part by strong results in its last quarter, with revenue more than doubling and earnings in the black. (It reports its fourth-quarter results at the end of the month.) Some have speculated about a buyout.
The company's reportable stock portfolio totaled $6.9 billion in value as of Dec. 31, 2012. Its biggest holding by far is American International Group (NYSE:AIG), making up a whopping 44%. The company will soon be reporting its latest results, with some expecting losses of more than $1 billion due to damage from Hurricane Sandy. The stock looks appealing to some, with its recent P/E ratio near 3 and a forward one near 10, and it's quite popular among hedge funds. Share buybacks at recent low levels are also very promising.
So what does Fairholme's latest quarterly 13F filing tell us? Here are a few interesting details:
There are no new holdings, and the only completely eliminated position was that of warrants in General Motors.
Fairholme increased its stake in Sears Holding (OTC:SHLDQ), another example of the company's willingness to be very contrarian. The stock has averaged annual losses of 13% over the past five years, losing significant market share to Amazon.com, reporting net losses in recent quarters, and closing some stores. Its faster-growing spinoff Sears Hometown and Outlet Stores is faring better.
Fairholme reduced its stake in Citigroup, CIT Group (NYSE:CIT), and Jefferies Group (UNKNOWN:JEF.DL). CIT Group recently posted solid fourth-quarter results, cutting its debt costs significantly. The company has been working on strengthening its position, with some speculating that it might end up acquired. CEO John Thain is Merrill Lynch's former CEO.
Investment banking concern Jefferies, meanwhile, has been performing well and is being acquired by Leucadia National. Leucadia is well regarded and has made some smart deals over the years. A while back, it helped bail out troubled Knight Capital Group.
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.