Berkowitz’s trimming of St. Joe shares does not signal a sudden bearishness on the stock. Rather, he is being forced to sell due to redemptions at Fairholme Capital Management. From July 25 to September 14, 2011, Berkowitz sold shares of St. Joe out of eight accounts after their management agreements were terminated.
The fund has a far smaller cash position than it did formerly. A year ago, one sixth of the Fairholme Fund was in cash equivalents. Today, it is in the single digits. Berkowitz commented on the fund’s reduced cash position on Wealthtrack last week, saying most of it had been spent on further investments and redemptions. He commented:
“At some point in a business cycle one has to get greedy. And the time to get greedy is when everybody is running for the hills with fear. And that is usually a great time to get the greed going. And we’ve become greedy. Less cash. More concentrated investments. Bigger percentage of investments. My definition of skills is knowing when you’re lucky and taking advantage of that luck. And we’re very lucky right now.”
Almost as contrarian an investment as his financials – which include Bank of America (BAC), Citigroup (C) and AIG (AIG) – St. Joe is a favorite of Berkowitz. He owns 29% of the company, which makes up almost 5% of his portfolio. On September 14, he received the right to buy up to 50% of it, up from 30% previously. .
The St. Joe Company is a Florida-based real estate developer and manager that owns approximately 574,000 acres of land concentrated primarily in Northwest Florida and has significant residential and commercial land-use entitlements in hand or in process. The majority of land not under development is used for the growing and selling of timber or is available for sale. The company also owns various resort and club properties.
St. Joe Co. has a market cap of $1.53 billion; its shares were traded at around $16.63 with a P/S ratio of 15.4 and P/B of 1.8. Its PB ratio has fallen to near its early-2009 low of 1.32.
Its most recent 10-Q filed on August 4 shows that it has improved in many areas from the same quarter last year. It has $199.8 million in cash, from $183.8 million, debt of $53.2 million from $54.5 million, and revenues of $25.3 million from $22 million, including increases in real estate sales, resort and club revenues, timber sales and other revenues.
On October 13, 2010, guru investor David Einhorn of Greenlight Capital, who is short St. Joe, delivered a 134-slide presentation at the Value Investing Congress excoriating the company and saying that many of its developments are ghost towns and that “little value remains.” He peppered his powerpoint with dim and bleak photos of St. Joe’s properties. After his presentation the stock price tumbled nearly 20% by the end of the day on October 14. So far, Einhorn has proven correct about the stock, as it has fallen 39% over the last year, though Berkowitz emphasizes his long-term view of his stock holdings.
Berkowitz rebutted Einhorn’s points on St. Joe in his own presentation in February 2011, using professional photos of the properties that portrayed an idyllic beach-side paradise.