Berkowitz Sells Citigroup During First Quarter

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Jun 01, 2015
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Bruce Berkowitz (Trades, Portfolio), founder and managing member of Fairholme Capital Management, did not see opportunities to invest in new stocks during the first quarter, and instead sold one stock and trimmed his position in eight others.

The investor runs a concentrated portfolio with 17 stocks, believing that over-diversification can lead to mediocre results.

“Our history is to buy in bulk during blowout sales with the knowledge that market price volatility only measures short-term perception of long-term risk,” the Fairholme website states.

Sold out

Citigroup (C, Financial)

Berkowitz sold out of 54,560 shares in Citigroup for an average price of $50.92 per share, after not touching the holding since Q3 2013. The following graph shows his holding history.

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Citigroup’s stock increased 15% over the past year and is currently priced at $54.84. The P/E ratio is 21.6, and the P/S ratio is 2.18. In 2014, the company reported EBIT per share of $4.73, down from $6.41 the year before.

Net income also declined in 2014, recording at $7,313 million, down from $13,673 million the year before. The current dividend yield is 0.15%, which is close to the five-year high. The payout ratio is just 1%, indicating plenty of room to grow the dividend in the future.

Reduce

American International Group (AIG, Financial)

Berkowitz trimmed his position in AIG by more than 53%, selling 27,422,416 shares for an average of $53.62 per share. The position now amounts to 23,861,480 shares. The following graph shows his holding history.

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AIG’s stock increased 8% over the past year, and now trades at $58.76, with a P/E ratio of 9.9 and P/S ratio of 1.3. Last year, the company reported EBIT per share of $7.25, an increase from $6.32 the year before.

Net income in 2014 was $7,529 million, down from $9,085 million the year before. The current dividend yield is 0.85%, while the payout ratio is 9%.

Bank of America (BAC, Financial)

Berkowitz also trimmed his position in Bank of America, selling 17,550,600 shares for an average price of $16.06 per share. His holding in the bank now consists of 76,754,365 shares.

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The current P/E ratio is 24.7, while the P/S ratio is 2.1. The stock increased 8% over the last year and is now priced at $16.54. Bank of America’s operating margin in 2014 was 8.14%, a decline from 18.18% the year before.

Over the past year, the revenue growth rate was -3.6%, while EBIT growth declined 5.1% over the same time period.

The bank’s dividend yield is currently 1%, which is close to the five-year high. The payout ratio is 24%.

Sears Holdings Corp (SHLD, Financial)

Berkowitz also marginally trimmed his position in Sears Holdings, by selling 556,100 shares for an average price of $36.33 per share.

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In a teleconference with investors earlier this year, Berkowitz called the department store chain a “once-in-a-lifetime opportunity” due to the real estate. His firm owns 20.13% of Sears’ outstanding shares as of the first quarter.

In a shareholder letter, Canadian investor Francis Chou (Trades, Portfolio) also stated that Sears’ value lies in its real estate properties, and management from controlling shareholder and CEO Eddie Lampert.

Over the past year, the stock rose 13% and now trades at $42.43. The company has not reported a profit since FY 2012. Last year, net income was $-1,682 million, down from $-1,365 million the year before.

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