Bruce Berkowitz (Trades, Portfolio)'s Fairholme Fund (Trades, Portfolio) recently increased its positions in two stocks while also adding a new buy to its portfolio of 27, with a value of $6.41 billion and a quarter-over-quarter turnover rate of 2%.
One of the stocks in particular has been described as "messy," partially due to the government's heavy hand in controlling it, but like most stocks this value investor chooses, it is a business that the American people need and it is a business that, if it were to disappear tomorrow, it would be impossible to replace.
If a company is irreplaceable, needed by the American people to function and its stock price is relatively cheap to him, then it will more than likely go into the Fund's portfolio.
Here's a look at the Fund's new stock and increased positions:
Berkowitz recently increased his stakes in FNMAS by 7.01%. The stock consists of 3.6% of his overall portfolio, with 54,015,019 shares valued at $233.3 million.
Fannie Mae is a governent-sponsored enterprise, chartered by Congress to support liquidity, stability and affordability in the secondary mortgage market, where assets are purchased and sold that are related to the mortgage market.
The stock is currently trading at $3.90/share.
Berkowitz has been asked why he chose to add such a controversial stock the portfolio since 80% of it is controlled by the government. He simply replied that he made the decision because it is one of the two most important institutions in the U.S. and also because it plays a very special role in economic government-sponsored enterprises and described the company as "fabulously profitable."
Federal Home Loan Mortgage Corp (FMCKJ, Financial)
The Fund increased its position with FMCKJ by 10.96% from the last period. The stock consists of 2.6% of the overall portfolio, with 37,698,500 shares valued at $163.9 million.
Federal Home Loan Mortgage providdes liquidity, affordability and stability to the U.S. housing market.
Like Fannie Mae, Berkowitz says that Freddie Mac was one of the two most important institutions in the U.S. and like Fannie Mae, plays a very special role in economic government-sponsored enterprises. Both companies carry a responsibility to stand up during times of stress when everyone else is running for the hills and keep the mortgage market going.
The stock is currently trading at $3.80/share
Sears Canada Inc (SCC.Canada)
The Fund recently added Sears Canada to its portfolio and purchased 5,078,700 shares at an average price of $10.66/share, although this is not the first time the Fund has had this stock in its portfolio. In 2012 Q4, the Fund purchased 6,087,327 shares at an average price of $11.20/share and then sold them all by 2013 Q3.
According to the Lynch chart above, the stock is valued at $28.34 and is currently selling at $12.17, meaning the stock may be undervalued.
The company's current ratio as of today is 1.66, which typically indicates good short-term financial strength. The P/E ratio is at 7.81 and the P/B ratio is 1.50. The P/S ratio is currently at 0.34 and investors should be weary of the fact that the company's revenue has been declining for the past 5 years.
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