By Elizabeth Jia
Not too long ago Bruce Berkowitz was a nobody. Now the man at the helm of Fairholme has dealt a stunning defeat for the legendary David Einhorn. Einhorn became famous due to his short bet against Lehman Brothers that prevailed. Berkowitz's Fairholme has been on the long side of St. Joe (JOE). Einhorn is the clear loser so far, given JOE stock is up 30% since the two squared off at last fall's Value Investor Congress. Here is where you'll find Fairholme's other investments:
General Electric Company (GE): GE is a diversified technology, media and financial services company. GE’s products and services include aircraft engines, power generation, water processing, security technology, medical imaging, business and consumer financing, media content and industrial products. Currently, GE is trading at a 16.69 P/E multiple and paying a dividend of $0.14/share.
GE closed last Friday at $19.25 after experiencing significant volatility throughout the last week due to concerns about their boiling water reactors in Japanese nuclear plants that had experienced damage due to the catastrophic earthquake and tsunami on March 11. The risk for GE extends beyond their exposure to the crisis in Japan, as people in the US begin to question the safety of GE’s boiling water reactors that are found in 23 of the 104 atomic power plants in the US.
Morgan Stanley (MS): The venerable investment bank recently hit 52-week highs earlier in the year. Cash flow from operations has been north of $40 billion. The company maintains a dividend of 0.7% and has room to raise it substantially. Morgan Stanley has come in second only to JP Morgan (JPM) in deal participation in 2011. Berkowitz has been modestly adding MS shares to his portfolio in the last few quarters.
AT&T (T): Trades at a P/E of 8.8, P/B of 1.5, and P/S of 1.4. The industry averages are 16.1, 2.0, and 1.4, respectively. From 2001 to 2007, T shares traded at a P/S of 2.9, 2.1, 2.1, 2.1, 1.9, 2.2 and 2.2, respectively. In 2010, EPS was $3.35, which was an increase of 58.02%, after decreasing by 1.85% in 2009. The company expects mid-single digit EPS growth or better in 2011. Q1 2011 results are revealed on April 21.
Verizon (VZ): Verizon is an extremely well run business that generates a ton of cash; cash that it uses to pay a hefty 5.37% dividend yield and quickly pay off the debt used to fund the Alltel acquisition. This market leader (the company serves around 94 million subscribers or approximately 25% of the US population) already has an extremely loyal consumer base, and with Apple (AAPL) iPhone pre-orders doing gangbusters thus far, we think those relationships will only grow stronger. While we think Verizon shares are approaching fair value, we believe Apple shares, on the other hand, are likely overvalued, as we outlined
Goldman Sachs (GS) The golden boy of finance finished the week at nearly $160/share and maintains a forward P/E of 8.7. Not too shabby. This is after a dip into 154/share territory that followed the markets down and then up again on Japan-centric events. Still sitting pretty Goldman still has another $20/share to gain before it hits fair value territory. The company carries a dividend yield of 0.9% and trades just above book at 1.24x.
Berkshire Hathaway (BRK.A): Berkshire shares are cheap in their own right and should trade around the $145,000 mark ($96 per B share), based on Berkshire's historic book value median of 1.6x. Most analysts continue to model Berkshire primarily as an insurance company, which is meritable, given that we value Berkshire's insurance businesses at around $85,000 per A share.
However, the Burlington (BNI) acquisition has transformed Berkshire's earnings power to suggest a book value analysis consistent with that of a railroad for its representative part of earnings. Warren Buffett also takes his position as a financial steward, not only for shareholders but also all Americans, very seriously. Buffett's recently has been cruising around Asia for acquisitions in Korea and India.
Citigroup (C) has shown four straight quarters of profit, after being squarely embroiled in the financial meltdown of 2008. In sum, the company made $10.6 billion in profits in 2010. The company also grew revenues by 7.87% in 2010, and 52.08% in 2009. The EBT margin in 2010 improved to 15.22%. In its heyday, Citigroup traded with P/S multiples in the 3’s. Now, it is 1.5, and the industry average is 1.3. EPS came in at $0.35 in 2010, recovering from -$0.80 in 2009. Analysts expect 2011 to produce an EPS between $0.32 and $0.55. Shares trade under $5. This is a long-term play.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.