When an individual runs a mutual fund, every move he or she makes is analyzed by analysts and investors on Wall Street. When a manager buys a particular stock, there is usually a good reason. Below are five of Bruce Berkowitz’s newest portfolio picks. Specifically, they are all financial stocks.
MBIA Inc. (MBI) – Only a few months ago, Mutual Fund manager Bruce Berkowitz added to his position of MBI of about 4.37% at an average price of $7.76 per share. This brought his total shares owned up to 48,879,744, and has a total impact of 0.12% on his portfolio. The company does not issue a dividend and does have a negative earnings per share of -$4.51. The beta on the stock is rather high at 2.45, making it 2.5 times more volatile than the market. However, one positive outlook for the company is that CEO Joseph W. Brown recently purchased 100,000 shares at an average of $7.38. Typically, when insiders purchase shares of their company, it’s because they feel the stock is undervalued and believe the price will rise. Based on analysts’ estimates, the company has a target price of $18.00. Assuming that target is met, this stock would at least have doubled from its current trading price. Paired with the fact that insiders are buying, and this stock could in fact rise in price.
American International Group Inc. (AIG) – AIG is another company in which Berkowitz added to his position. In fact, he more than doubled it. The addition was 133.41% to bring his portfolio’s total to 103,164,517. The purchase, made at an average of $30.45 per share, has a sizable impact of 13.39% on his portfolio. Although the price of the stock has recently dropped from this purchase price, the company is still profitable. The earnings per share for the company are $5.24, which gives it a price to earnings of 4.79.
Based on the industry ratio of 12.6 and S&P 500 price to earnings ratio of 18.0, some may feel that AIG is currently undervalued. AIG is currently ahead one of its biggest competitors in Allianz SE (OTCQX:AZSEY) which has a higher price to earnings ratio of 8.61 and a lower earnings per share of $1.30. AIG is currently trying to increase its financial leverage and flexibility by swapping out its higher percentage debt up to $2.5 billion dollars. Decreasing the cost of debt will increase the company’s cash flow, which could help the company’s income statement and stock price.
Berkshire Hathaway B shares (BRK.B) – Berkowitz also added Warren Buffett’s company Berkshire Hathaway B. The shares were purchased at an average price of $78.95 and were an addition of 19.88%, bringing the total owned to 9,428,019. This has a total impact on Berkowitz’s portfolio of 0.94%. The company has price to earnings ratio of 14.80, which is slightly higher than the industry at 14.5. The insurance holding company has posted a an earnings per share of $5.23. Even based on the company’s price to earnings and price to book value, some may feel that the stock is undervalued. Regardless of the price, many feel that as long as Buffett is running the company, this stock is one that will continue to bring in a profit for years to come. Unfortunately, the stock does not issue a dividend, which is something that most likely won’t happen as long as Buffett is running the company. However, with the return on equity that Buffett has been able to bring in through his company’s investments, many people aren’t going to question the way he runs the company.
Jefferies Group Inc. (JEF) – Jefferies Group Inc. is a company that was a new addition to Berkowitz’s portfolio. The total amount purchased was 4,123,711 at an average of $22.61 a share. This purchase has a total impact on the portfolio of 0.65%. Unlike some of the other stocks discussed in this article, JEF offers an annual dividend of $0.30, which translates to a dividend yield of 2.40%. The company does have a higher beta of 1.57, making it slightly more volatile than the market. The earnings per share are $1.37, which gives JEF a price to earnings ratio of 9.3, which is less than the industry and S&P 500 at 11.9 and 18.0 respectively.
One of JEF’s main competitors, Arlington Asset Investment Corp. (AI), does have a higher earnings per share amount of $4.24 and a lower price to earnings ratio at 5.82. One of the areas of concern for JEF is its financial strength. The company has a higher total debt to equity ratio of 1.55, meaning the company has $1.55 in debt for every $1 of company equity. However, the price to book ratio of the company is 0.80, meaning that the market capitalization of the stock is less than what the break up price of the company. Some investors use this ratio as a resource to help determine if the stock is truly undervalued.
Citigroup (C) – Another stock Berkowitz added to his portfolio recently was Citigroup. The purchase was an additional 2.1%, which brought the total owned up to 26,387,898. The average price purchased was $41.99 and had a total impact to his overall portfolio of 0.18%. The stock has turned in profitable earnings per share at $3.75. This gives it a price to earnings ratio of 8.24. This is slightly under the industry price to earnings ratio of 9.9. For investors who do not like volatile stocks, C may not be the one to choose; with a beta of 2.55, this stock is more than twice as volatile as the market. C does, however, issue a dividend with a yield of 0.13%, or $0.04 annually. C does trail industry leader JPMorgan Chase & Co. (JPM) in the price to earnings ratio as JPM is at $4.69, with a lower price to earnings of 7.14. As the industry and market begin to turn around, this company may be a profitable one to hold as analysts anticipate a target share price of $43.59.