Bruce Berkowitz is as hardcore of a value investor as it gets. He started buying financials in early 2009 and ramped that up in 2010. He has has held Sears (SHLD) for years now, which should tell you something. Berkowitz has a good track record and was Morningstar’s mutual fund manager of the year in 2009.
Canadian Natural Resources (CNQ, Financial) is an interesting new position taken by Bruce Berkowitz (Trades, Portfolio) because it is an energy play that he sold out not too long ago. He runs a highly concentrated portfolio, but it is interesting to see such a notorious bottom fisher take a sizeable stake here. The position equals about 6% of his portfolio.
The major risk with Canadian Natural Resources is its bread and butter, which is exposure to oil and gas. If the price of energy remains low or goes down further, the company can get into trouble. Oil sand projects are not particularly popular with politicians and projects that are under development could turn out to be a lot more costly than originally anticipated. If energy prices don’t go up, I don’t think Berkowitz is going to get the returns he is looking for here.
The company has not one person in the traditional CEO role but does have a chairman of the board (Murray Edwards) and a president (Steve W. Laut). Edwards is a consultant and co-owner of the Calgary Flames hockey team, he is credited with being a significant contributor to the growth of the company since he became a director and important shareholder in 1988. Before that he was partner in a law firm. Laut has been an engineer at the company since 1991 and worked his way up the ranks until he become president in 2005. Returns on assets have been between 3.78% and 12% under his watch as president. Usually near the lower end of that range.
Source: GuruFocus valuation
On a price/earnings basis the company is rather expensive as it is trading at a 21x multiple. However, it is still making large investments developing its projects which depresses earnings. This is best illustrated if you take a look at the valuation page of GuruFocus where you will see it trades at a price/projected FCF multiple of 1.47x which is ridiculously low. The increase of cash flow has to be achieved through lower CapEx and operating costs at the all important Horizon project, the Kirby oil sands project, Pelican Lake and the Alberta Redwater Upgrader that should come online in 2017. If the company can significantly improve its free cash flow Berkowitz's investment will turn out as having been prescient.
To be fair he is not the only guru involved as Brian Rogers (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) all hold shares.
