Seeking Alpha
Profile| Send Message|
( followers)  

Bruce Berkowitz is the Managing Member and the founder of Fairholme Capital, which he established in 1997. His fund returned 25.5% in 2010 and 39.01% in 2009. According to J3SG, the total value of the fund is approximately $14 billion.

When investing, he mainly focuses on a small number of companies. He believes that "the more diversified the portfolio, the more likely the performance will be average. He likes companies with great managers, and deeply undervalued stocks. Benjamin Graham's "The Intelligent Investor" serves as the inspiration for Berkowitz’s investment strategy. He focuses investments on companies that have exceptional management, that generate free cash, and that are cheaply priced."

His portfolio mostly includes financial [72.75%] and services [20.57%]. Here is a brief analysis of his latest four big sells and two big buys (data from Finviz and is current as of June 8 close):

Big Sells

General Growth Properties Inc (GGP) is a shopping center business in U S. GGP recently cut the deal with The Macerich on Arizona malls. As of June 8, the company’s market cap is $15.6 billion. Dividend yield is 2.47%, and profit margin is negative.

GGP failed to attract its creditors, and almost went bankruptcy on 2009. After this issue, GGP hired Sandeep Mathrani as its new chief executive and he maintained policy to heal itself. Therefore, the company offered new stock shares to the public.

Debts are now an unleashed troll and the overall situation does not seem very optimistic to me. Although there are numerous efforts to improve the financial situation of the company, these pull factors may not have satisfied Berkowitz. While there is no GGP left in Berkowitz's 13F filings, he still owns GGP through Brookfield Asset Management.

General Electric Company (NYSE:GE) is a multinational conglomerate corporation. As of June 8 close, GE owned a market cap of $196.3 billion, P/E ratio of 14.7, and forward P/E ratio of 11.15. The company had an EPS growth of -6.74% over the last five years, while analysts estimate a double digit EPS growth in the next five. In addition, while the company’s profit margin is 8.4%, its gross margin is 15.66%. PEG value is 0.9, and dividend yield is 3.25%. We can say that GE is doing quite good for now when we look at these indicators.

GE cut its dividends by almost 2/3 in Jun, 2009. Debts are strolling around alarming rates, while assets are decreasing. Today may be sweet for GE, but its captain would better be ready to sail through a real tough ocean. Berkowitz closed his stake in the company, which does not really surprise me much. Recent dividend history of GE per share as follows:

Feb 24, 2011

$0.14

Dec 22, 2010

$0.14

Sep 16, 2010

$0.12

Jun 17, 2010

$0.10

AT&T (NYSE:T): AT&T received a telecommunications license in Indonesia which will help the company gain a strong foothold in that country. T’s market cap as of Jun 8 is $179.6 billion, and trailing ratio is 8.98. Earnings increased by 38.76% this quarter, and 57.08% this year. With a 16.26% profit margin, T paid a 5.67% dividend in 2010.

Debts, and assets look okay . Yield is great. Although Hudson Square, Deutsche Bank, and Piper Jaffray recommend buying, obviously Berkowitz does not agree with them. He reduced his holdings by 93.15% in T this quarter. I’d not turn my back on a dividend stock pick for the next five years, no matter how low its estimated 5-year EPS growth is [5.9%]. Recent dividend history is as follows:

Apr 6, 2011

$0.43

Jan 6, 2011

$0.43

Oct 6, 2010

$0.42

Jul 7, 2010

$0.42

Verizon Communications (NYSE:VZ), the second largest mobile provider in the U.S. took a significant role by participating in World IPv6 Day. As of June 8th, the New-York based company had a market capitalization of $101.56 billion, and a trailing ratio of 28.72. Forward P/E is 13.7, while dividend yield is 5.43%. VZ had a -16.07% EPS growth during the last five years, while earnings decreased by 47.77% this year.

There will not be a considerable EPS growth in the next five years, as analysts estimate. Debts had an approximately 66% increase during the last four years. Berkowitz reduced his VZ holdings by 92.67% this quarter. In one of my previous analysis, VZ showed up as a weak fundamental. Avoidance should do well. Here are the last four dividends of the company:

Apr 6, 2011

$0.488

Jan 6, 2011

$0.488

Oct 6, 2010

$0.488

Jul 7, 2010

$0.475

Big Buys

Brookfield Asset Management Inc. (NYSE:BAM): Brookfield really deserves its abbreviation. It keeps beating the market consistently. 6.9% of Fairholme portfolio is BAM, indicating that Berkowitz has great expectations from the company. The company’s market capitalization as of June 8th close is $19.7 billion, and P/E ratio is 12.5. Forward P/E is 19.82. Earnings had a whopping increase of 251.62% this year, and 60.66% this quarter. Company paid a 1.64% yield last year.

Berkowitz opened his biggest stake in BAM this quarter, buying over 27 million shares worth $923 million. RBC Capital and Credit Suisse suggest an outperform rating for BAM. Debt-to assets ratio is almost having a free fall for the last four years, caused by immense increases of total assets. It is definitely a stock to pick. Here are the recent dividend payments of Brookfield:

Apr 27, 2011

$0.13

Jan 28, 2011

$0.13

Oct 28, 2010

$0.13

Jul 28, 2010

$0.13

Cisco Systems, Inc. (NASDAQ:CSCO) provides information and communication technology products as well as related services. The company yielded its first dividend ever in its history recently. As of June 8, CSCO had a $84.15 billion market capitalization, and a 12.05 trailing ratio. Forward P/E is 9, while earnings increased by 26.82% this year. Gross margin is 61.8%, whereas profit margin is 16.8%. CSCO paid a 1.57% dividend in 2010.Target price is $21.08, which implies more than 25% increase in the intermediate term.

Although debts increased about 150% during the last four years, increasing assets are keeping the debt-to assets ratio stabilized. Cisco seems to promise a noteworthy future. Indeed, this sector is also growing day to day because the Internet is an inevitable tool for all people around the world. CSCO has taken advantages of these opportunities very well. For some reason that I could not figure, the stock performance is heading south while the company is doing really good. I think Cisco deserves a higher rank in the stock market.

Source: 4 Big Sells and 2 Big Buys by Bruce Berkowitz