Tracking Bruce Berkowitz's Fairholme Portfolio - Q1 2014 Update

by: John Vincent


Bruce Berkowitz’s US stock portfolio increased marginally this quarter from around $9.71B to $9.90B.

Fairholme's largest three positions continue to be American International Group, Bank of America, and Sears Holdings. They together account for 67.26% of the portfolio.

The combined position size in Fannie & Freddie (and preferreds) remained steady this quarter.

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 05/15/2014. 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 2013.

Berkowitz's US stock portfolio increased marginally this quarter from around $9.71B to $9.90B. The portfolio continues to be very concentrated with most of it invested in just eight businesses. The largest three positions account for two-thirds of the US long portfolio - the percentage increases to just over 73% when including the associated warrants.

New stakes:


Stake Disposals:


Stake Increases:

Sears Holdings Corp (NASDAQ:SHLD): SHLD is Berkowitz's third largest position at 11.82% of the US long portfolio. The original stake was established in 2007 although the position size has fluctuated over the years. Last two years saw consistent buying and the share count has increased from around 16.8M shares to over 24.5M shares. Last quarter saw a ~2.7% stake increase at prices between $44 and $66 and this quarter saw another 15% stake increase at prices between $34 and $49. The current stock price ($39.71) is far below Berkowitz's average purchase price. The pattern of buying signifies a strong bullish bias. For investors attempting to follow Berkowitz, SHLD is a very good option to consider: he controls 23% of the business.

On 4/7/2014, Land's End (NASDAQ:LE) was spun-off from SHLD whereby SHLD holders received LE shares at the ratio 1:0.3. Sears acquired this online/catalog retail clothing business for around $1.9B in 2002 and the current market valuation is at $850M.

Stake Decreases:

American International Group (NYSE:AIG) & AIG WTS 45 Strike: AIG is Berkowitz's largest position at around 38.24% of the US long portfolio. The position size was reduced by 6% last quarter at prices between $47.30 and $52.30. This quarter saw another ~5% stake reduction at prices between $46.88 and $52.22. The stock currently trades at $52.49. Berkowitz is bullish on AIG, although the last two quarters saw significant stake reductions.

Bank of America (NYSE:BAC) & WTS 13.30 Strike: BAC is Berkowitz's second largest position behind AIG at ~17.19% of the US long portfolio. The stake was first purchased in 2010 and minor adjustments have since been made every quarter. The common was marginally reduced in Q3 2013 but last quarter saw a reversal: marginal increase. This quarter, the common was decreased marginally while the warrants were increased marginally - the net effect was a very minor overall stake reduction. BAC traded between $13.69 and $17.92 during the last two quarters. It currently trades at $14.48. Berkowitz continues to be very bullish on BAC.

St Joe Companies (NYSE:JOE) & Leucadia National (NYSE:LUK): JOE and LUK are large 4.83% and 4.54% of the US long portfolio stakes respectively. The JOE stake was reduced marginally and the LUK position was reduced by ~11% this quarter. 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. In Q1 2013, 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. JOE trades at $20.60 and LUK at $25.02 currently. For investors attempting to follow Berkowitz, these are good options to consider.

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B): Berkshire Hathaway is a long-term holding that was built aggressively in the 2009-2011 time frame. At its peak in 2011, the position accounted for 10% of the US 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 US long portfolio position at prices between $90 and $104 and in Q2 2013 the pattern reversed as 50% of the stake was sold at prices between $103 and $115. Last two quarters saw marginal stake reductions. This quarter, the stake was reduced to a minute 0.37% of the US long portfolio position at prices between $109 and $125. The stock currently trades at around $127.

Kept Steady:

Federal Home Loan Mortgage Association & PFD (OTCQB:FMCC) (FMCKJ) and Federal National Mortgage Association & PFD (OTCQB:FNMA): These positions were first disclosed in a June 2, 3013 press release when it was announced that they hold $2.4B par value of the preferred stocks of these two entities. The press release went on to push the restructuring of Fannie and Freddie. The preferred shares traded at around $6 (~25 cents on the dollar: $25 par value) at the time of the announcement and they currently trade at around $11 (~44c on the dollar). This quarter, the position sizes were adjusted, although overall there is not much of a change: FNMA was eliminated while FNMAS was increased by 26% - also FMCC was reduced by ~11%.

Other very small positions (less than 0.5% of the US long portfolio each) in the portfolio include AT&T Inc. (NYSE:T), Chesapeake Energy (NYSE:CHK), Citigroup Inc. (NYSE:C), Genworth Financial (NYSE:GNW), Hartford Financial Services (NYSE:HIG) & WTS 9.563 Strike, JP Morgan Chase WTS 42.42 Strike, Lincoln National (NYSE:LNC) & WTS 10.636 Strike, Vodafone Group plc (NASDAQ:VOD), and Wells Fargo (NYSE:WFC) & WTS 34.01 Strike.

The spreadsheet below highlights changes to Fairholme's US stock holdings in Q1 2014:

Disclosure: I am long SHLD, LE. 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.