This article is part of a series that provides an ongoing analysis of the changes made to Fairholme's US stock portfolio on a quarterly basis. It is based on Fairholme's regulatory 13F Form filed on 05/15/2013. Please visit our Tracking Bruce Berkowitz's Fairholme Fund Holdings article for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q4 2012.
Bruce Berkowitz's US stock portfolio size increased 13.14% this quarter from around $6.95B to $7.86B. The number of positions in the portfolio went up from 20 to 21 - CIT Group and Jefferies Group were eliminated and replaced with three new picks. The largest five positions account for over 81% of the overall US long portfolio value. That percentage approaches 87% when including the associated warrants.
Chesapeake Energy (CHK): CHK is 3.47% of the US long portfolio stake established this quarter at prices between $$16.60 and $22.52. The stock currently trades at $20.66. For investors attempting to follow Berkowitz, CHK is a very good option to consider. Also interesting is the fact that Carl Icahn, Lou Simpson, and Mohnish Pabrai have all built significant stakes in the company recently.
Canadian Natural Resources (CNQ) & Genworth Financial (GNW): These are very small stakes established this quarter. As the stakes are very small, they do not indicate a clear bias. CNQ is 0.45% of the US long portfolio established this quarter at prices between $28.87 and $32.93. The stock currently trades at $29.27. GNW is 0.45% of the US long portfolio established this quarter at prices between $7.50 and $10.50. The stock currently trades above that range at $10.94.
CIT Group (CIT): CIT Group was reduced by over 70% last quarter at prices between $36.12 and $40.81. The remaining 1.79% of the US long portfolio position was eliminated this quarter at prices between $38.60 and $44.72. It was a large 7% of the portfolio position first purchased in 2009. During Q2 2012, the position was reduced by around 25% at prices between $32.57 and $41.60. In Q3 2012, the stake had been further reduced by another ~25% at prices between $34.20 and $41.38. The stock currently trades at $44.50. The stake elimination over several quarters signifies a clear bearish bias.
Jefferies Group (JEF): The small stake in JEF was first established in Q2 2011. The original stake was doubled in Q2 2012 at prices between $13.64 and $19.49. Over the next two quarters, over 50% of the stake was sold at prices between $11.77 and $18.85. The stake was eliminated this quarter as a result of Leucadia (LUK) and Jefferies merging in an all-stock deal (0.81 shares of LUK for a share of JEF).
American International Group (AIG): AIG is Berkowitz's largest position at 42.43% of the US long portfolio. As such, he is extremely bullish on AIG. The stake was increased marginally this quarter after having been increased marginally last quarter as well. Such minor stake adjustments quarter-to-quarter do not signify a clear bias.
Bank of America (BAC): BAC is Berkowitz's second largest position behind AIG. The position was purchased in 2010 and has since been kept steady although minor adjustments have been made every quarter. This quarter, the stakes in the common shares were increased marginally and the warrants were kept steady. BAC traded between $11 and $12.78 during the quarter. It currently trades above that range at $13.44. Berkowitz continues to be very bullish on BAC.
Berkshire Hathaway (BRK.A) and (BRK.B): Berkshire Hathaway is a long-term holding that was built aggressively in the 2009-2011 timeframe. The stake has since been reduced by over 80% as of Q2 2012. This quarter saw an about-turn as the stake in BRK.B was almost doubled to 2% of the US long portfolio position at prices between $90 and $104. The stock currently trades above that range at $112.77. At one point in 2011, the stake in Berkshire Hathaway accounted for 10% of the US long portfolio.
Leucadia National: LUK is a very long-term holding that was built-up over several years to a 6.55% stake. This quarter, the position was increased by around 5% as a result of the all-stock merger deal between LUK and JEF. The stock currently trades at $31.79. Berkowitz is very bullish on LUK. For investors attempting to follow Berkowitz, LUK is a good option although a better entry-point should be considered.
Sears Holdings Corp (SHLD): SHLD is Berkowitz's third largest position at 12.40% of the US long portfolio. The original stake was established in 2007 although the position size has fluctuated over the years. This quarter, it was increased by 7.5% after having increased the stake marginally in the last two quarters. The activity in the last few quarters happened at prices between $39.50 and $66.76. The stock currently trades at $58.17. The current stock price is far below Berkowitz's average purchase price. The pattern of trades indicates aggressive buying in the face of price weakness and as such signifies a strong bullish bias. For investors attempting to follow Berkowitz, SHLD is a very good option to consider.
SHLD spun-off Sears Hometown and Outlet Stores (SHOS) in a rights transaction in mid-October 2012. That stock has been on a roll as it has returned over 45% in the last seven months.
MBIA Inc. (MBI): MBI is 4.11% of the US long portfolio position that was reduced by over one-fourth this quarter at prices between $7.85 and $13.02. The stock currently trades at $15.39. The original stake was established in 2010 and the significant stake reduction indicates a bearish bias.
AIG WTS 45 Strike, Orchard Supply Hardware (OSH), St Joe Companies (JOE), Wells Fargo (WFC), and Wells Fargo WTS 34.01 Strike: These positions were only marginally reduced this quarter and so do not signify a clear bias.
The rest of the positions were left untouched during the quarter:
Citigroup (C), Assured Guaranty (AGO), Bank of America WTS 13.30 Strike, JP Morgan WTS 42.42 Strike, Lincoln National (LNC) WTS 10.715 Strike, and Hartford Financial Group WTS 9.649 Strike: C was a very large stake established in 2010 that has since been reduced to an insignificant position. AGO was a small position established in Q2 2011 but was reduced to an insignificantly small position the next quarter. They were both left untouched this quarter. The positions in the warrants are very small (less than 1%) to signify a clear bias.
The spreadsheet below highlights changes to Fairholme's US stock holdings in Q1 2013: