GoodHaven Capital Management LLC runs a concentrated fund that managers have described as looking “almost nothing like the S&P 500.”
Larry Pitkowsky founded GoodHaven Capital Management with his partner Keith Trauner after both spent almost a decade at Bruce Berkowitz (Trades, Portfolio)’s Fairholme Capital Management, where the slogan is “Ignore the crowd.” Though the GoodHaven Fund (GOODX, Financial) reaped double-digit returns, the volatility endemic to concentrated portfolios dragged on performance for the past several years. The level of conviction the value investors have about their holdings remained so high, however, that they purchased more shares of the fund in the last year and are among its largest shareholders, they said in June.
“We continue to believe that our aggregate portfolio appears significantly cheaper than the broad market as measured by price-to-earnings multiples and discounts to reasonably calculated net asset values,” they said.
Specifically, the GoodHaven portfolio had a forward price-to-earnings multiple of roughly 12.5 based on 2016 estimated earnings compared to 17.7 for the S&P 500, and sold at a 40% discount to their estimate of intrinsic value, according to their June letter to shareholders.
Managers maintaining this type of portfolio rather than trying to mimic an index, they said, should outperform over the next few years, as index valuations had steadily risen.
“We have seen several positive and significant business developments in our largest holdings that do not appear adequately reflected in their underlying stock prices,” they said. “We have the liquidity to behave opportunistically and we do not own any obviously overpriced securities, many of which have sizeable weights in major equity indexes.”
Pitkowsky will give a talk about investing at the 2016 GuruFocus Value Conference.
GoodHaven Fund’s top five holdings as of the end of the second quarter were: Walter Investment Management Corp. (WAC, Financial), WPX Energy Inc. (WPX, Financial), Barrick Gold Corp. (ABX, Financial), Hewlett-Packard Co. (HPQ, Financial) and Staples Inc. (SPLS, Financial).
Walter Investment Management Corp. (WAC, Financial)
GoodHaven held 2,535,101 shares of Walter Investment Management Corp., or 6.71% of shares outstanding. The holding represents 18.4% of their portfolio. They reduced the holding by 159,581 shares, or 5.92%, in the second quarter when the price averaged $19.
Walter Investment Management Corp. was incorporated in Maryland on June 10, 1997, as Hanover Capital Mortgage Holdings Inc. Walter Investment Management Corp. has a market cap of $636.98 million; its shares were traded around $16.85 with a P/S ratio of 0.57.
WPX Energy Inc. (WPX, Financial)
GoodHaven held 3,542,499 shares of WPX Energy, or 1.5% of shares outstanding. The holding represents 13.8% of the portfolio. The managers reduced the position by 234,850 shares, or 6.2%, in the second quarter when the price averaged $13.
WPX Energy Inc. is a Delaware Corporation formed in 2011 to effect the separation from The Williams Companies Inc. WPX Energy Inc. has a market cap of $1.82 billion; its shares were traded around $7.74 with a P/E ratio of 5.17 and P/S ratio of 0.59.
Barrick Gold Corp. (ABX, Financial)
GoodHaven held 2,326,380 shares of Barrick Gold Corp., representing 7.87% of the portfolio. Managers added 71,250 shares of the company, increasing the holding by 3.16%, in the second quarter when the share price averaged $12.
Barrick Gold Corp. was incorporated in July 14, 1984. Barrick Gold Corp. has a market cap of $7.97 billion; its shares were traded around $6.84 with a P/S ratio of 0.83. The dividend yield of Barrick Gold Corp. stocks is 2.5%.
Hewlett-Packard Co. (HPQ, Financial)
GoodHaven held 786,086 shares of Hewlett-Packard, representing 7.49% of the company. Managers increased the position by 34,500 shares, or 4.59%, in the second quarter when the price averaged $33.
Hewlett-Packard Co. was incorporated in 1947 under the laws of the State of California as the successor to a partnership founded in 1939 by William R. Hewlett-Packard Co. has a market cap of $47.72 billion; its shares were traded at around $26.54 with a P/E ratio of 10.8 and P/S ratio of 0.47. The dividend yield of Hewlett-Packard Co. stocks is 2.54%.
Staples Inc. (SPLS, Financial)
GoodHaven held 1,225,260 shares of Staples Inc., representing 5.96% of the portfolio. Managers reduced the position by 253,900 shares, or 17.2%, in the second quarter when the price averaged $16.
Staples Inc. is a Delaware corporation incorporated in 1986. Staples Inc. has a market cap of $8.69 billion; its shares were traded around $13.51 with a P/E ratio of 164.71 and P/S ratio of 0.41. The dividend yield of Staples Inc. stocks is 3.55%.
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