3 Non-Financial/Insurance Stocks That Bruce Berkowitz Likes

Includes: BAM, JOE, SHLD
by: Mike Young

Bruce Berkowitz is one of the most successful and closely followed mutual fund managers on Wall Street. Lately, he has shifted the majority of the Fairholme Fund’s assets into financials, specifically bank and insurance stocks. However, given his concentrated investment style and outstanding track record, I think one would do well to keep an eye on some of his other top holdings. Using Fairholme’s website, we can take a look at Berkowitz’s top holdings as of August 31, 2011:

Sears Holdings Corporation (NASDAQ:SHLD)

This retailer, which operates in both the United States and Canada, is Berkowitz’s largest non-financial holding at 7.9% of the Fairholme Fund portfolio. Sears Holdings owns the Kmart retail chain, the eponymous Sears chain, and 94% of Sears Canada. Unlike most retailers, Sears' Chairman, Eddie Lampert, is a hedge fund manager. His hedge fund, ESL Partners, is a majority owner of the company, and several prominent investors in his hedge fund, such as the Thomas Tisch (who serves on the board), own shares directly as well. Berkowitz’s Fairholme Fund, is the second largest shareholder behind Lampert, with over 15% of the shares outstanding.

Bruce Berkowitz has continued to stick with Sears Holdings, despite its declining revenues and shrinking profits. In his opinion, if Lampert and his team are able to get the retail operations turned around and the housing sector starts to recover, Sears could be a big win. At the same time, he doesn’t see much downside. Without question, the company has a lot of moving parts, and investors would be wise to do their homework before following Berkowitz into this investment.

Brookfield Asset Management (NYSE:BAM):

Brookfield, a global asset manager focused on property, renewable power, private equity and infrastructure assets, makes up 6.8% of the Fairholme fund portfolio. Interestingly, Berkowitz did not establish this position through purchases on the open market, but instead through a direct deal between Fairholme and Brookfield. In the beginning of 2011, Fairholme sold Brookfield its holdings in General Growth Partners (NYSE:GGP), a mall owner that Berkowitz started buying while it was in bankruptcy, in a cash and stock deal. Fairholme owns 3.58% of Brookfield’s total shares outstanding.

Brookfield Asset Management is also held by several long-term value investors, such Murray Stahl of Horizon Kinetics Asset Management and Marty Whitman of Third Avenue Capital Management. The company generates over $16B in revenues and has $1.96B in cash on its balance sheet. It has a modest P/E of 7.52, although its forward P/E is 22.01 based on analysts’ estimates for 2012 earnings. It has a dividend yield of 1.90%, with a dividend payout ratio of 14%.

The St Joe Company (NYSE:JOE)

Berkowitz has 3.8% of the Fairholme portfolio in this Florida-based real estate development company. Although it is not the biggest holding for Berkowitz, it has generated the most news. Hedge fund manager David Einhorn gave a public presentation on the problems with St. Joe. And the company has created some legal headaches for Fairholme after the SEC launched a formal investigation of St. Joe, and included Berkowitz, who briefly served as chairman, as part of investigation. The stock price is down 34% this year, and the short interest for the stock is 64.5% of its total float.

Recently, however, Glenrock Asset Management founder, Michael Katz, revealed in an interview with Barron's that he was also long St. Joe. Several other notable investment firms hold St. Joe, including Blackrock Advisors (+10M shares), Janus Capital Management (+8M shares) and T Rowe Price (+6M shares). Given this interest from several successful money managers, investors may want to take a closer look at this stock before writing it off. St. Joe has a market cap of $1.33B, and holds $188.24M in cash on its balance sheet compared to $52.43M in total debt.

Disclosure: I am long SHLD.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

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