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Fairholme Fund Buys CSCO, AIG, BRK.B, GS; Sells RRR, SPR

August 03, 2011 | About:
gurufocus

gurufocus

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Bruce Berowitz is having some hard times, at least for now. The Fairholme Fund lost 9.42% during the first six months of 2011 while the S&P 500 Index ("S&P 500") gained 6.02%. Since inception, the Fairholme Fund increased by 301.18%, which compares favorably to the S&P 500's gain of 11.34%. As of 05/31/2011, Fairholme Fund owns 22 stocks with a total value of $14.6 billion. These are the details of the buys and sells.

After a decade of stellar performance by buying high-quality companies with strong cash flows and capable management, Fairholme Fund’s asset under management ballooned. With a much bigger size of fund, Bruce Berkowitz, the guru that manages Fairholme Fund, bet heavily that the giant financial companies will recover after the stresses they have experienced in the financial crisis. He has close to 80% of the fund equity investment in these big financials.

We don’t know yet that his bet will reward him as much as his previous investments in long term. In short term, these investments have hurt his performance numbers. Mr. Berkowitz certainly has high conviction in these stocks. He wrote in his latest shareholder letter:

When prices fall off the proverbial cliff investors run fearing that the market is omnipotent. But, such plummets do not always mean death and destruction. This was the case in the early 1990s, when studied banks and financial guarantors stabilized around five times normal earnings before their rise to all-time highs.

Today, we believe to be at a similar tipping point for financials with enormous cash flows and diminishing restructuring expenses for the illogical extremes of 2006/2007. Their pre-provision, pre-tax earnings power is compelling. A not unreasonable 1% return on Citi's assets or 10% return on equity would yield $6 per share. A 1% ROA or 10% ROE for BofA would yield over $2 per share.

AIG common stock is similarly cheap, due mostly to market pressures caused by the U.S. Treasury's desire to sell its 77% ownership. When a recovering icon trades at half of our understanding of intrinsic value for a reason that has nothing to do with its prospects, we swing big
.

As you may know, in order to track Bruce Berkowitz more closely, we track three portfolios of his. The first is Fairholme Capital Management under his name. The second is under Fairholme Fund, which is the portfolio we are discussing here. The third is Fairholme Focused Income Fund, which is his dividend-generating portfolio.

Fairholme Fund bought more American International Group Inc., Berkshire Hathaway B, The Goldman Sachs Group Inc., and initiated new position in Cisco Systems Inc. It sold RSC Holdings and Spirit Aerosystems Holdings Inc. Cl A during the three months ended 05/31/2011, according to the most recent filings of his investment company, Fairholme Fund.

For the details of Fairholme Fund's stock buys and sells, go to http://www.gurufocus.com/StockBuy.php?GuruName=Fairholme+Fund

This is the sector weightings of his portfolio:

Financials 75.6%
Not Assigned 19.5%
Technology 3.9%
Industrials 1%


These are the top five holdings of Fairholme Fund

  1. American International Group Inc. (AIG) - 94,832,939 shares, 14.7335% of the total portfolio. Shares added by 134.54%
  2. (AAIGF.PK) - 302,221,000 shares, 7.3183% of the total portfolio.
  3. Sears Holdings Corp. (SHLD) - 14,494,373 shares, 7.0605% of the total portfolio.
  4. Bank Of America Corp. (BAC) - 77,317,115 shares, 6.2329% of the total portfolio.
  5. Brookfield Asset Management (BAM) - 27,500,000 shares, 6.2036% of the total portfolio.


Added: American International Group Inc. (AIG)

Fairholme Fund added to his holdings in American International Group Inc. by 134.54%. His purchase prices were between $28.28 and $37.51, with an estimated average price of $33.56. The impact to his portfolio due to this purchase was 8.45%. His holdings were 94,832,939 shares as of 05/31/2011.

American International Group, Inc., world leaders in insurance and financial services, is the international insurance organization with operations in more than 130 countries and jurisdictions. American International Group Inc. has a market cap of $52.63 billion; its shares were traded at around $27.75 with a P/S ratio of 0.8.

Added: Berkshire Hathaway B (BRK.B)

Fairholme Fund added to its holdings in Berkshire Hathaway B by 42.66%. His purchase prices were between $77.67 and $86.7, with an estimated average price of $82.27. The impact to his portfolio due to this purchase was 1.38%. His holdings were 8,507,450 shares as of 05/31/2011.

Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. Berkshire Hathaway B has a market cap of $181.43 billion; its shares were traded at around $73.37 with a P/E ratio of 14.4 and P/S ratio of 1.4. Berkshire Hathaway B had an annual average earnings growth of 18.2% over the past 10 years.

Added: The Goldman Sachs Group Inc. (GS)

Fairholme Fund added to his holdings in The Goldman Sachs Group Inc. by 1.92%. His purchase prices were between $134.99 and $164.49, with an estimated average price of $153.28. The impact to his portfolio due to this purchase was 0.11%. His holdings were 6,263,400 shares as of 05/31/2011.

Goldman Sachs is a global investment banking and securities firm, providing a full range of investing, advisory and financing services worldwide to a substantial and diversified client base, which includes corporations, financial institutions, governments, and high net-worth individuals. The Goldman Sachs Group Inc. has a market cap of $67.94 billion; its shares were traded at around $131.23 with a P/E ratio of 12.9 and P/S ratio of 1.8. The dividend yield of The Goldman Sachs Group Inc. stocks is 1%. The Goldman Sachs Group Inc. had an annual average earnings growth of 9.8% over the past 10 years.

New Purchase: Cisco Systems Inc. (CSCO)

Fairholme Fund initiated holdings in Cisco Systems Inc. His purchase prices were between $16.19 and $18.56, with an estimated average price of $17.31. The impact to his portfolio due to this purchase was 3.94%. His holdings were 34,199,700 shares as of 05/31/2011.

Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Cisco Systems Inc. has a market cap of $85.03 billion; its shares were traded at around $15.46 with a P/E ratio of 10.8 and P/S ratio of 2.1. The dividend yield of Cisco Systems Inc. stocks is 1.5%. Cisco Systems Inc. had an annual average earnings growth of 23% over the past 10 years. GuruFocus rated Cisco Systems Inc. the business predictability rank of 2.5-star.

Reduced: Spirit Aerosystems Holdings Inc. Cl A (SPR)

Fairholme Fund reduced to his holdings in Spirit Aerosystems Holdings Inc. Cl A by 42.46%. His sale prices were between $21.5 and $26.16, with an estimated average price of $24.27. The impact to his portfolio due to this sale was -0.9%. Fairholme Fund still held 6,395,600 shares as of 05/31/2011.

Spirit Aerosystems is the world's largest independent supplier of commercial airplane assemblies and components. Spirit Aerosystems Holdings Inc. Cl A has a market cap of $2.8 billion; its shares were traded at around $19.66 with a P/E ratio of 12.1 and P/S ratio of 0.7.

Sold Out: RSC Holdings (RRR)

Fairholme Fund sold out his holdings in RSC Holdings. His sale prices were between $11.87 and $14.57, with an estimated average price of $13.27.

RSC Holdings is one of the largest equipment rental providers in North America. RSC Holdings has a market cap of $1.11 billion; its shares were traded at around $10.68 with and P/S ratio of 0.9.

About the author:

gurufocus
GuruFocus - Stock Picks and Market Insight of Gurus

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