By Darnell Brown
Bruce Berkowitz is the founder and the Managing Member of the Fairholme Fund. Prior to forming Fairholme Capital Management, Mr. Berkowitz was a Managing Director of Smith Barney, Inc. from December of 1993, to October of 1997.
Bruce Berkowitz invests in a relatively small number of companies. He thinks that the more diversified the portfolio, the more average the performance will be. He likes companies with strong managers, and seriously undervalued stocks. He focuses on companies that have outstanding management, that generate free cash, and that are cheaply priced.
Citigroup (C) is a New York based financial services company. The company does business in 140 countries with approximately 16,000 offices. With a market cap of $111.76 billion, Citi is one of the largest financial service companies in the world. On July 15, shares of the stock dropped $0.64 cents, or 1.6 per cent, to $38.38. The shares dropped despite a report that showed better-than-expected profits. The company reported a profit of $3.34 billion, which was a 24% increase over the second quarter of 2010. While the company benefitted from smaller-than-expected US loan defaults, the core businesses, which the bank wanted to grow, did not do well.
Citi is in a good position to move forward once the economy improves. The stock has a P/E of 12, and at $38.38, the stock is at the low end of its 52-week cycle. I think Citigroup will continue to increase profits, and at $38.38, the stock is cheap. I rate Citigroup a Buy.
Goldman Sachs Group Inc. (GS) is a leading global investment banking, securities and investment management firm. The firm has a market cap of 67.39 billion with a P/E of 14.30. First quarter earnings were $1.56, down from $3.79 in the prior quarter. The decrease in earnings was reflected in the stock price.
The stock has traded in a 52 range of between $128.30 and $175.34, and is currently trading at $130.16. For 2011, the stock is down 25 percent.
Goldman Sachs is due to announce second quarter earnings July 19. Over the last 7 days, earnings estimates have decreased from $2.76 to $2.42. The decline in estimates indicates weakness in the stock. Expect the earnings report to be disappointing. I would rate the stock as a Hold at this time.
Cisco Systems (CSCO) has its headquarters in San Jose, California. The company engineers, manufactures and sells routers and switches used for computer networking. Cisco is virtually unopposed in the computer networking IT sector. Cisco Systems has a market cap of $85.75 billion, which is more than 5 times larger than its nearest competitor Juniper Networks (JNPR). Despite what seems to be a competitive advantage the stock has not done well. Shares of Cisco have dropped 34% over the past year.
Cisco’s net third quarter earnings for the period ending April 30, were $1.8 billion down from $2.2 billion in the third quarter of 2010. These revenue and earnings figures were seen as being extremely bearish by both investors and analyst. The stock is currently trading at $15.59, which is at the low end of its 52-week trading range of between $14.78 and $26.00. The stock shares have been in a pervasive downtrend. I do not see anything changing for Cisco in the near future, and I would rate this stock a Hold.
Berkshire Hathaway Inc. (BRK.B) Berkshire Hathaway, Inc. is an investment management company that is run by the legendary investor Warren Buffett. Through its subsidiaries, the company primarily engages in the insurance and reinsurance of property and casualty risks business. The company’s best-known business is the Geico Insurance Company.
Berkshire Hathaway has a market cap of $186.34 billion. The company had first quarter earnings of $33.78 billion, which was less than the prior quarter earnings of $36.2 billion. Over the last year, the performance of the stock has been mediocre. The stock, currently priced at $75.36, has ranged between $73.23 and $87.65 over the last 52 weeks. This stock pays no dividend and has a P/E ratio of 16.3. I do not see where this stock has a lot of upside, and I rate it a Hold.
Telefonica S.A. ADS (TEF) was incorporated in Spain in 1924. The Company is a telecommunications group, which provides a range of services through its telecommunications networks, mainly focused on providing fixed and mobile telephony services Spain, Europe and Latin America.
Telefonica is a large company with a market cap of $100.91 billion. Over the last 52 weeks, the stock has been in a slump. The price has ranged between $20.07 and $27.61. The stock is now at $22.11, which is at the low end off its trading range. The good news is that the company has more than 5 billion dollars in cash and equivalents and pays a dividend, which yields 7.2%. Telefonica S. A. is a strong stable company that pays a hefty dividend. It has a P/E ratio of 7, and I consider this stock to be a bargain. I rate this stock a Strong Buy.
Glaxo Smith Kline PLC (GSK) is an English company that together with its subsidiaries, engages in the discovery, development, manufacture, and marketing of pharmaceutical products, over the counter medicines, and health-related consumer products.
Glaxo Smith Kline has recently gotten approval for the release of several new drug products that it has high hopes for. The stock has done well and is up 11% this year. It is now trading at $43.28 just off of its 52-week high of $44.42. This is despite the fact that the company's first-quarter sales were down 1%, and earnings were down 11%. Glaxo Smith Kline is worrisome because it has a debt/equity ratio of 167%. In spite of its debt, this company pays a $2.11 dividend with a 4.9% yield. This stock is at the top of its trading range and has a P/E of 37.83. I think the stock is overpriced, and rate it a Hold.