Bruce Berkowitz

Bruce Berkowitz

Last Update: 12-18-2015
Related: Fairholme Fund
Fairholme Focused Income Fund

Number of Stocks: 22
Number of New Stocks: 9

Total Value: $3,471 Mil
Q/Q Turnover: 24%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

Bruce Berkowitz Watch

  • Bruce Berkowitz Shows New Stock Positions for Q4

    Bruce Berkowitz (Trades, Portfolio) released his fourth-quarter letter and portfolio update Wednesday, reporting he purchased three new stocks.


    Berkowitz’s Fairholme Fund (Trades, Portfolio) fell 11.5% during 2015, versus a 1.38% gain for the S&P 500 Index, as some of the top names in his concentrated portfolio – St. Joe (NYSE:JOE), Sears (NASDAQ:SHLD) and Fannie Mae (FNMAS) – struggled. The investor’s forays into companies trading at distressed or out-of-favor market prices have often led to broad swings in performance in the past. In his worst year, 2011, Berkowitz lost 32.4%, and followed in 2012 with a 35.8% gain.

      


  • Bruce Berkowitz Comments on Imperial Metals Corp

    Imperial Metals Corporation (“Imperial”) (TSX:III), whose securities comprise 4.9% of Fund assets, posted record production results in 2015: 88.1 million pounds of copper, 44.7 thousand ounces of gold, and 224.5 thousand ounces of silver. During the year, the company focused on ramping up its world-class Red Chris mine that is expected to produce copper at cash costs around $1.20 per pound for decades to come. While primarily known for its huge copper reserve, Red Chris also boasts the seventh largest gold deposit in the world. We anticipate that Imperial will prudently weather this commodity cycle while preparing for the next development phase at Red Chris.


    From Bruce Berkowitz (Trades, Portfolio)'s 2015 Annual Letter for the Fairholme Allocation Fund.   


  • Bruce Berkowitz Comments on Bank of America

    Bank of America (NYSE:BAC) warrants comprise 9.4% of Fund assets. The warrants offer attractive upside given that the company trades under tangible book value per share of $15.62. CEO Brian Moynihan recently noted that Bank of America’s 2015 results were the “company’s highest earnings in nearly a decade,” and much more improvement is possible. As the company reduces expenses and increases capital distributions, the double-ratchet feature of our warrants ensures that we are more than compensated for dividends paid to common equity shareholders.


    From Bruce Berkowitz (Trades, Portfolio)'s 2015 Annual Letter for the Fairholme Allocation Fund.   


  • Bruce Berkowitz Comments on Sears Holdings Corp

    Sears Holdings Corporation (“Sears”) (NASDAQ:SHLD) common stock, warrants, and bonds comprise 13.2% of Fund assets. Our ongoing valuation work reinforces our longstanding belief that Sears is worth multiples of its current market price (as evidenced in the chart below), largely based on its vast real estate empire and disparate businesses confi gured to sell, deliver, connect, control, service, and replace all manner of consumer products. Throughout the year, the Fund took advantage of price declines to increase its stake.


    Last year’s sale of 266 properties for $3.1 billion unlocked one-fourth of the company’s real estate square footage. The properties included in the transaction were not exclusively the crème de la crème of the company’s real estate portfolio as many have falsely asserted. Instead, the quality of the properties included in the transaction closely mirrors the approximately 170 million square feet of real estate retained by Sears today as depicted in the following chart.

      


  • Bruce Berkowitz Comments on Imperial Metals Corporation

    Imperial Metals Corporation (“Imperial”) (TSX:III) common shares and senior unsecured notes due 2019 comprise 5.4% of Fund assets. We first bought Imperial after observing Murray Edwards develop Canadian Natural Resources Limited – particularly its massive Horizon oil sands project – into a world-class energy producer. We believe that Imperial’s Red Chris mine is a replay of low-cost Horizon, but with one of the largest copper resources and the seventh largest gold deposit in the world. Imperial posted record production results in 2015, and we expect the company to weather the current commodity cycle while preparing for the next upswing.


    From Bruce Berkowitz (Trades, Portfolio)'s 2015 Annual Letter for the Fairholme Fund.   


  • Bruce Berkowitz Comments on St. Joe Company

    The St. Joe Company (“St. Joe”) (NYSE:JOE) comprises 12.8% of Fund assets. Today, St. Joe stands well capitalized and focused on future developments in Florida’s Bay and Walton Counties. The company is entitled to develop 170,000 residential units and 22 million square feet of retail, commercial, and industrial facilities on 110,500 acres of nearly contiguous land on the “Emerald Coast.” We believe that the intrinsic value of St. Joe’s current entitlements and other assets is substantially higher than its recent market price, and were pleased that the company repurchased almost 17 million shares of its common stock (over 18% of the outstanding public float) at $18 per share in 2015.

    From Bruce Berkowitz (Trades, Portfolio)'s 2015 Annual Letter for the Fairholme Fund.   


  • Bruce Berkowitz Comments on Fannie Mae

    In 1986, famed Magellan Fund manager Peter Lynch touted Fannie Mae (OTCBB:FNMA) as “the best business, literally, in America.” At that time, Fannie Mae had a price-to-earnings ratio of one. Lynch noted that “when a company can earn back the price of its stock in one year, you’ve found a good deal.” Thirty years later, the price-to-earnings ratio of Fannie Mae is back at one – but the circumstances are quite different. In our view, current prices of Fannie Mae as well as its smaller cousin Freddie Mac do not refl ect the economic value of existing assets, let alone future earnings power, embedded in these world-class franchises. Indeed, the companies are not priced for a run-off of their existing businesses; they are priced for the permanent expropriation of all assets.

    Fannie Mae and Freddie Mac represent 16.4% of Fund assets, primarily in the form of preferred stock. For those unfamiliar, Fannie Mae and Freddie Mac are simple and straightforward insurance companies. They are not banks. There isn’t a local Fannie Mae or Freddie Mac branch on the street corner. Unlike the big banks, Fannie Mae and Freddie Mac did not commit any consumer fraud in the run-up to the fi nancial crisis. The two do not originate mortgages and they do not deal directly with individual homeowners. However, when it comes to funding our nation’s housing market, Fannie Mae and Freddie Mac are mission critical. The companies have helped tens of millions of American families buy, rent, or refi nance a home even during the toughest economic times when banks and other lenders shun mortgage risk. Bottom line: Fannie Mae and Freddie Macare the housing fi nance system in America, and earn a nominal amount (less than 40 basis points) for ensuring that the venerable 30-year fi xed-rate mortgage remains widely accessible and affordable.

    During the 2008 fi nancial crisis, Fannie Mae and Freddie Mac helped save America’s home mortgage system and resuscitated our national economy by continuing to provide liquidity when credit and insurance markets froze solid. According to a comprehensive analysis by Thomas Ferguson and Robert Johnson published in the International Journal of Political Economy, federal regulators explicitly directed Fannie Mae and Freddie Mac to initiate massive purchases of “home mortgages and mortgage bonds to stem declines in those markets and alleviate pressures on the balance sheets of private fi rms,” particularly “overburdened banks.” Then in 2012, Treasury’s decision to usurp all of the profi ts from each company in perpetuity (the so-called “Net Worth Sweep”) improved the federal budget defi cit in an election year and avoided protracted debt ceiling negotiations with Congressional Republicans.

    Roger Parloff’s recent Fortune magazine piece – “How Uncle Sam Nationalized Two Fortune 50 Companies” – details the de facto nationalization of Fannie Mae and Freddie Mac by the federal government and the determined effort by a handful of bureaucrats to hide the truth from the public:

    For reasons that remain shrouded in secrecy to this day, the Treasury Department and the companies’ conservator, the Federal Housing Finance Agency (FHFA) – two arms of the same government – agreed to radically change the terms of what the GSEs would owe in exchange for the moneys they had already received. Instead of a 10% annual dividend on all the bailout funds drawn … the dividend was now to be set at 100% of each GSE’s net worth. One hundred percent. That is to say, any and all profit they posted. And this would be so in perpetuity ... The two firms, on their way back to health, were effectively nationalized. The sudden change was called the “third amendment,” an innocuous-sounding designation that belies its momentous consequences … If this strikes you as, well, un-American, you’re not alone … The government’s alleged nationalization of two enormous corporations raises potentially landmark constitutional issues – comparable to President Harry Truman’s attempt to nationalize steel mills during the Korean War … Seven years into their conservatorship, the GSEs remain adrift, with shrinking capital reserves and no exit plan—a dormant, festering crisis … Documents and depositions from officials at Treasury and FHFA, obtained in discovery in a suit brought by Fairholme Fund (Trades, Portfolio)s, show that the government’s story is “highly misleading” in some respects and “outright false” in others, plaintiffs lawyers allege in court briefs … The lawyers can’t tell the media (or even their clients) specifically what the documents and depositions show, however. That’s because Court of Federal Claims Judge Margaret Sweeney has ordered those materials sealed from public view, at the government’s behest. Bewilderingly, the Justice Department has persuaded her that disclosure of that information—concerning a now three- to eight-year-old decision-making process of tremendous public interest—might cause “dire harm” and “place this nation’s financial markets in jeopardy” … The spectacle of a conservator wiping out shareholders just as the companies he’s supervising are about to have their best years in history simply doesn’t smell right. It’s hard to picture the Supreme Court letting it stand.

    The market gyrations experienced during 2015 do not reflect our progress in halting Treasury’s unlawful taking of Fannie Mae’s and Freddie Mac’s assets. Indeed, newly discovered evidence – which shows the government’s defense to be outright false – was subsequently presented to the D.C. Circuit Court (under seal as required), and plaintiffs in other cases from the Northern District of Iowa to the Eastern District of Kentucky have now obtained these documents as well. We remain confident that Treasury’s deliberate effort to realign the equity of each company and allocate all profits to itself in perpetuity is strictly prohibited by federal and state law, and anticipate that several of these cases will be adjudicated this year.

    Today, taxpayers own 79.9% of Fannie Mae and Freddie Mac. In this respect, taxpayers are fully aligned with private shareholders of these extremely valuable companies. In our view, anyone claiming that shareholders are seeking remuneration at “taxpayer expense” is peddling fiction. Only the disingenuous would assert that recapitalization of these companies would take decades and come at taxpayer expense, as if retaining earnings precluded the ability of each company to raise equity from private investors. Only those beholden to special interests would ignore the substantial reforms implemented at Fannie Mae and Freddie Mac over the last eight years and pretend that the companies are somehow doomed to repeat the past upon release from conservatorship. Only those who oppose the dream of American homeownership would attempt to dismantle President Franklin Roosevelt’s New Deal by eliminating two publicly traded, shareholder-owned companies that have single-handedly provided $7 trillion dollars – yes, trillion – in liquidity to support America’s mortgage market since 2009.

    Shareholders simply request that the Treasury Department respect the capital structure of each company, respect the economic bundle of rights associated with our securities, and respect the law setting forth the rules of a conservatorship as decreed by Congress. The economist Herbert Stein once famously said: “If something cannot go on forever, it will stop.” Sooner rather than later, we believe the Net Worth Sweep will be halted and a common sense solution will prevail: Fannie Mae and Freddie Mac will transform into low-risk, public utilities with regulated rates of return, just like your local electric company.

    From Bruce Berkowitz (Trades, Portfolio)'s 2015 Annual Letter for the Fairholme Fund.   


  • Bruce Berkowitz Comments on Seritage Growth Properties

    Seritage Growth Properties (“Seritage”) (NYSE:SRG), a newly formed public real estate investment trust (REIT) that purchased the aforementioned 266 properties from Sears in mid-2015, comprises 2.5% of Fund assets. Our detailed property-by-property analysis, which has been independently corroborated by third party real estate professionals, indicates that Seritage is signifi cantly undervalued at current market prices. One can only speculate that Warren Buffett (Trades,Portfolio) concurs with our assessment given his recent decision to personally acquire shares. Seritage’s real estate portfolio, which includes 235 properties and joint venture interests in 31 additional properties, has the opportunity to command signifi cantly higher rents. Seritage appears to have the largest development backlog of any national REIT, and will be able to develop more rentable space over time without a need for further acquisitions. Commentary from the company’s joint venture partners – General Growth Properties, Macerich, and Simon Properties – about ongoing and future projects across the country only serves to reinforce our conclusions. As shown in the following chart, Seritage and Sears have two of the lowest priced real estate portfolios in the United States.

    From Bruce Berkowitz (Trades, Portfolio)'s 2015 Annual Letter for the Fairholme Fund.   


  • Bruce Berkowitz Comments on Sears Holdings Corp

    Sears Holdings Corporation (“Sears”) (NASDAQ:SHLD) common stock, warrants, and bonds comprise 13.2% of Fund assets. Our ongoing valuation work reinforces our longstanding belief that Sears is worth multiples of its current market price (as evidenced in the chart below), largely based on its vast real estate empire and disparate businesses confi gured to sell, deliver, connect, control, service, and replace all manner of consumer products. Throughout the year, the Fund took advantage of price declines to increase its stake.

    Last year’s sale of 266 properties for $3.1 billion unlocked one-fourth of the company’s real estate square footage. The properties included in the transaction were not exclusively the crème de la crème of the company’s real estate portfolio as many have falsely asserted. Instead, the quality of the properties included in the transaction closely mirrors the approximately 170 million square feet of real estate retained by Sears today as depicted in the following chart.

    Proceeds from the sale were used to reduce corporate debt by $936 million, and the company must now accelerate its return to profi tability in order to rebuild confi dence with customers, creditors, vendors, employees, and other investors. Doing so should enable Sears to optimize the value of all its assets.

    From Bruce Berkowitz (Trades, Portfolio)'s 2015 Annual Letter for the Fairholme Fund.   


  • Bruce Berkowitz Comments on AIG

    Fund shareholders have realized over $2 billion in gains from our investment in American International Group (“AIG”) common stock. Today, our remaining AIG (NYSE:AIG) stake is composed of double-ratchet, long-dated warrants (14.2% of Fund assets) received in connection with AIG’s 2011 recapitalization. These warrants are our largest position for three reasons: (i) AIG’s common shares continue to trade at a meaningful discount to the company’s tangible book value of nearly $80 per share; (ii) AIG has the potential to materially improve the cost structure of its property and casualty business, as its expense ratio remains higher than its peer group average; and (iii) future dividend increases and capital distributions will improve the conversion ratio and exercise price of the warrants until their 2021 expiry.

    From Bruce Berkowitz (Trades, Portfolio)'s 2015 Annual Letter for the Fairholme Fund.   


  • Bruce Berkowitz's Annual Shareholder Letter for Fairholme Focused Income Fund 2015

    To the Shareholders and Directors of The Fairholme Focused Income Fund:

      


  • Bruce Berkowitz's Annual Shareholder Letter for Fairholme Allocation Fund 2015

    To the Shareholders and Directors of The Fairholme Allocation Fund:

      


  • Bruce Berkowitz's Fairholme Fund Year-End Letter

    The Fairholme Fund (Trades, Portfolio) (the “Fund” or “FAIRX”) decreased 11.48% versus a 1.38% gain for the S&P 500 Index (the “S&P 500”) in 2015. The following table compares the Fund’s unaudited performance (after expenses) with that of the S&P 500, with dividends and distributions reinvested, for various periods ending December 31, 2015.


    The value of a $10,000 investment in the Fund at its inception was worth $47,442 (assumes reinvestment of distributions into additional Fund shares) compared to $18,981 for the S&P 500 at year-end. Of the $47,442, the value of distributions reinvested was $28,942. It is clear a reinvestment strategy is rewarding.

      


  • Insiders Buy Northern Oil & Gas, Sears Holdings

    The All-In-One Screener can be used to find insider buys and sales over the last week by clicking on the Insiders tab and changing the settings for All Insider Buying to “$1,000,000+” and duration to "January 2016."


    According to the above filters, the following are the recent buys from company insiders in the past week.

      


  • Most-Bought Financial Citigroup Gets Even Cheaper After Strong Q4 Results

    The financial stock bought by the most gurus, Citigroup Inc. (NYSE:C), announced mostly earnings results Friday, yet the stock became even cheaper.


    Eighteen investors followed by GuruFocus had purchased shares of Citigroup in the fourth quarter, with a combined weighting of 32.7%, according to the S&P 500 Screener. T. Rowe Price Equity Income Fund led new buyers with 5.04 million shares, equal to 1.2% of assets managed, followed by Bruce Berkowitz (Trades, Portfolio), who purchased 3.01 million shares, equal to 4.3% of assets managed. More gurus purchased its shares than JPMorgan (NYSE:JPM) and America Express (NYSE:AXP), its immediate followers on the list.

      


  • Still a Guru Favorite

    Are the gurus right about Bank of America (NYSE:BAC)?


    There are only a few companies that are more widely held by GuruFocus' gurus. Two of these are banks as well: Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C). Meanwhile lots of gurus have been selling out of Bank of America over the past quarter while the stock is within 20% of its 52-week high and only 2.3% above its 52-week low. Today, the bank reported solid earnings that beat expectations.

      


  • Now Inc. Could Be Multi-Bagger Over Next Decade

    Here goes another bloody day for the energy sector. It is a good time to consider Now Inc. (DNOW), which could be one of those babies thrown out with the bath water.


    Now Inc. has a wide moat, a strong management, and a material opportunity to consolidate a fragmented industry. Due to the drop in oil price, the stock has sold down to below book value, of which the majority is working capital. We could now be looking at an opportunity that could bring a multi-bagger over the next decade.

      


  • 3 Investment Opportunities Double Tapped by Insiders and Gurus

    GuruFocus has various tools and screeners available to make the quest for your next great investment a little bit more efficient. A tool of which I am fond is the Double Buy screen. By employing it you can easily screen a list of stocks that have been double tapped by both gurus and insiders. Both types of events tend to trigger my interest, but when they occur simultaneously it is time to pay close attention. I regularly review the list, and these are currently the top three stocks that come up on the screen:


    top insider buys 2.jpg

      


  • Berkowitz Boosts Sears Holdings Position After Turning Activist

    Bruce Berkowitz (Trades, Portfolio) increased his shareholding of Sears Holdings Corp. after announcing a more active role in the company as its stock price slipped 39% this year in its third under leadership of CEO and investor Eddie Lampert.


    According to insider data, Berkowitz reported Dec. 29 purchasing 390,100 additional shares of the company and selling 51,200, giving him a total of 27,835,448 shares, amounting to a 26% stake. The transactions took place between Dec. 24 and Dec. 29 at prices ranging from $20.81 to $21.74 per share. Sears shares traded around $20.15 Thursday afternoon, near a 10-year low, after a 0.89% decline since the start of the trading day.

      


  • Happy New Year From Bruce Berkowitz: Buffett Affirms Seritage, Buy When Others Sell

    Dear Fellow Shareholders,


    Over the last few weeks, all of us at Fairholme have been asked about expected performance. My response is both simple and consistent: We buy when most feel they should sell. This advice may sound counterintuitive, but it has proven most wise when we have invested in ideas that were most out of favor.

      


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