Tracking Bruce Berkowitz's Fairholme Portfolio - Q3 2013 Update

by: John Vincent

This article is part of a series that provides an ongoing analysis of the changes made to Fairholme's U.S. stock portfolio on a quarterly basis. It is based on Fairholme's regulatory 13F Form filed on 11/14/2013. 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 Q2 2013.

Bruce Berkowitz's U.S. stock portfolio size increased ~10% this quarter from around $7.69B to $8.44B. The number of positions in the portfolio remained steady at 19 - no new stocks were added or eliminated during the quarter. Although a majority of the position sizes were adjusted, all of them were marginal increases or decreases. The portfolio continues to be very concentrated with the largest three positions accounting for about 80% of the U.S. long portfolio. That percentage increases to ~86% when including the associated warrants.

New stakes:


Stake Disposals:


Stake Increases:

Sears Holdings Corp (NASDAQ:SHLD): SHLD is Berkowitz's third largest position at 14.67% of the U.S. long portfolio. The original stake was established in 2007 although the position size has fluctuated over the years. Last two quarters saw a combined stake increase of ~10% at prices between $40 and $60. The pattern continued this quarter with a marginal stake increase at prices between $39.34 and $62. The current stock price of $63 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 (NASDAQ:SHOS) in a rights transaction in mid-October 2012. That stock has been on a roller-coaster since then - very strong performance in the first few quarters followed by a sharp price-drop.

Lincoln National (NYSE:LNC) WTS 10.636 Strike and Hartford Financial Group WTS 9.563 Strike: The positions in the warrants are very small to signify a clear bias. Combined, they account for only 0.23% of the U.S. long portfolio. Both saw minor buying activity this quarter.

Stake Decreases:

St Joe Companies (NYSE:JOE) & Leucadia National (NYSE:LUK): JOE and LUK are large 5.81% and 6% of the U.S. long portfolio stakes respectively that were reduced marginally this quarter. They were reduced marginally last quarter as well. The bulk of the JOE stake was purchased in the 2008-2009 timeframe and there have only been minor adjustments since. LUK is a very long-term holding that was built-up over several years. Last quarter, the position was increased by around 5% as a result of the all-stock merger deal between LUK and Jefferies. Berkowitz is very bullish on JOE & LUK. For investors attempting to follow Berkowitz, these are good options to consider.

American International Group (NYSE:AIG): AIG is Berkowitz's largest position at around 49% of the U.S. long portfolio. The position size was reduced marginally this quarter at prices between $44.22 and $50.57. The stock currently trades at $49.31. Berkowitz is extremely bullish on AIG. The stake was increased incrementally in each of the previous three quarters against advancing prices.

AIG WTS 45 Strike: The position was decreased marginally this quarter. The activity does not signify a change in bias.

Bank of America (NYSE:BAC): BAC is Berkowitz's second largest position behind AIG at 16.30% of the U.S. long portfolio. The stake was first purchased in 2010 and minor adjustments have since been made every quarter. Last quarter, the position in the common shares was increased marginally and the warrants were kept steady. BAC traded between $11.44 and $13.83 last quarter and between $12.83 and $14.94 this quarter. It currently trades at the top-end of those ranges at $14.80. The position was marginally reduced this quarter. Berkowitz continues to be very bullish on BAC.

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B): Berkshire Hathaway is a long-term holding that was built aggressively in the 2009-2011 timeframe. At its peak in 2011, the position accounted for 10% of the U.S. long portfolio. The following quarters saw an about-turn as the position was reduced by over 80% by Q2 2012. In Q1 2013, the stake was almost doubled to a 2% of the U.S. long portfolio position at prices between $90 and $104 and last quarter the pattern reversed as 50% of the stake was sold at prices between $103 and $115. This quarter saw a marginal stake reduction. The stock currently trades at around $116.

Chesapeake Energy (NYSE:CHK): CHK was a 3.47% of the U.S. long portfolio stake established in Q1 2013 at prices between $16.60 and $22.52. It was reduced to an insignificantly small 0.21% position last quarter at prices between $18.47 and $22.58. It was marginally reduced this quarter. The stock currently trades well above those ranges at $25.95. The quick about-turn represents a clear bearish bias.

Genworth Financial (NYSE:GNW), Citigroup (NYSE:C), Lincoln National, Hartford Financial Services (NYSE:HIG), and Wells Fargo (NYSE:WFC): The positions are very small (less than 0.5%) to signify a clear bias. The positions were reduced this quarter.

The rest of the positions were left untouched during the quarter:

Wells Fargo WTS 34.01 Strike, Bank of America WTS 13.30 Strike, JP Morgan WTS 42.42 Strike: The positions in the warrants are very small (less than 1%) to signify a clear bias. They were left untouched this quarter.

The spreadsheet below highlights changes to Fairholme's U.S. stock holdings in Q3 2013:

(Click to enlarge)

Disclosure: I am long SHLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.