Bruce Berkowitz (Trades, Portfolio) is famous for the minimal amount of turnover and trades in his portfolio.
The Fairholme Fund (Trades, Portfolio), which he founded in 1999, is highly concentrated with 26 stocks, almost 60% of which is currently in the financial services industry. In the recently updated portfolio dated Aug. 31, Berkowitz made only three trades.
The deep value investor often works from his home office in Miami, where he sometimes begins sending emails as early as 4 in the morning and is still reading annual reports by 9 p.m., according to an in-depth profile with Fortune.
Berkowitz moved Fairholme’s offices from New Jersey to Florida in 2006, partly for the weather but mostly to put distance between himself and Wall Street. At Fairholme’s old location in Short Hills, N.J., Berkowitz said he was constantly in danger of running into other investors who might “pollute his thinking,” and he knew he had to move away. With his buffer zone, Berkowitz can invest in his unique way that has allowed him to beat the S&P 500 in 11 of the past 13 years.
The following are the three changes to the Fairholme Fund (Trades, Portfolio) in the most recent quarter.
Imperial Metals Corp (TSX:III, Financial)
Berkowitz added 1,155,000 shares of Imperial Metals at $12.05 each for a total of 3,860,300. He has held shares since the fourth quarter 2013.
Imperial Metals is engaged in the exploration, development and production of base and precious metals from its mineral properties. Its key properties are two open pit mines: a copper and gold mine, and a copper and molybdenum mine, both located in British Columbia, Canada.
The company’s stock has been down 30% since the beginning of the year. Revenue has grown 33.8% over the past 10 years.
When comparing the price and earnings line, it’s apparent that Imperial Metals recently became undervalued by a slight margin, after being overvalued since late 2011.
American International Group Inc. (AIG, Financial)
Fairholme sold 6,159,600 shares of AIG at an average price of $54.69, leaving the fund with a total of 61,756,499 shares.
As evidenced from the graph above, AIG’s share price has been increasing steadily, and Berkowitz has been unloading shares at a profit. The average price of shares bought is $31.25, compared to the price of sold shares at $50.78.
In an interview with Wealthtrack in late September, Berkowitz said he estimates AIG’s book value to be about $75. He gradually trims his position, because as the price rises, the company becomes a larger portion of the portfolio.
AIG is an insurance agency with four segments: general insurance, domestic life insurance and retirement services, foreign life insurance and retirement services, and financial services.
In a 2012 case study outlining the reasons for investing in AIG, Berkowitz pointed out that the company has a “de-risked” balance sheet, and is a dominant player in the insurance industry with more than 86 million customer relationships worldwide.
Berkowitz sold 847,321 shares at $37 per share, leaving Fairholme with a total of 1,641,616 shares. He had recently sold out of the shares in the first quarter 2014.
Lands’ End spun off from Sears (SHLD, Financial) in April, and its stock has been up 43% since then. In its second quarter 2014 report, operating income increased 37.6% year-over-year to more than $25 million. Gross margin also increased 310 basis points to 48.5% compared to the second quarter in the previous year.
Fairholme also holds a position in Sears, with 14,212,673 shares, or 13.35% of shares outstanding.
At the time of the Lands’ End spinoff, Sears was struggling to maintain profits, but Lands’ End was a bright spot with a 58% increase in profits from the previous year.
Other gurus who hold shares in Lands’ End include Joel Greenblatt (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
