Fairholme Fund (Trades, Portfolio), managed by Bruce Berkowitz (Trades, Portfolio), disclosed on Monday it initiated a position in Vistra Energy Corp. (VST, Financial) during the quarter ending Feb. 28. The fund also reduced its holdings in Sears Holdings Corp. (SHLD, Financial) and preferred shares of both Federal Home Loan Mortgage Corp. (FMCC, Financial) and Fannie Mae (FNMA, Financial).
Vistra Energy
Berkowitz’s fund invested in 850,000 shares of Vistra Energy for an average price of $18.50 per share. With this transaction, the fund’s portfolio increased 1.84%.
Irving, Texas-based Vistra Energy provides various electricity services through two business segments: Wholesale and Retail. The holding company for TXU Energy has a profitability rank of 6: while the company’s margins and returns underperform competitors, Vistra Energy’s Piotroski F-score ranks 6 out of 9, driven by several factors, including increasing returns on assets, lower leverage, higher current ratios and higher asset turnover year over year.
Sears
The Fairholme Fund axed 32.49% of its stake in Sears, selling 4,397,400 shares for an average price of $3.22 per share. The transaction reduced the portfolio 1.64%.
Sears CEO Edward Lampert (Trades, Portfolio) said in a March 14 press release that despite making progress last year, the company “needs to do more” to return to profitability this year. Unfortunately, the company has struggled to make a profit, as evidenced by its profitability rank of 2. Additionally, GuruFocus listed six red flags for Sears, including a weak Piotroski F-score of 2 and increasingly negative operating margins. Sears’ gross margin has contracted approximately 4.2% per year over the past five years.
Freddie Mac and Fannie Mae
Berkowitz’s fund continued trimming its holdings in preferred shares of Freddie Mac and Fannie Mae. During the quarter, the fund sold 7,886,338 shares of Freddie Mac 8.375% fixed-to-floating preferred shares (FMCKJ.PFD, Financial) and 7,678,501 of Fannie Mae Series S preferred shares (FNMAS.PFD, Financial). The two trades chopped 9.78% of the portfolio in the aggregate.
Freddie Mac, a major U.S. government-sponsored enterprise, invests in mortgage loans and mortgage-related securities. The company disclosed on Tuesday that strong competitive fundamentals and continued guarantee book growth contributed to $2.2 billion in comprehensive income for the quarter. CEO Donald Layton said the strong performance “demonstrated the increased stability of [Freddie Mac’s] earnings” and continued progress in its mission to create a “better housing finance system” for lenders, investors, families and taxpayers.
GuruFocus ranks Freddie Mac’s profitability 4 out of 10: although the company has expanding operating margins, Freddie Mac’s return on assets of 0.28% underperform 83% of global competitors. On the other hand, Fannie Mae has a slightly worse return on assets of 0.07%.
See also
GuruFocus tracks several funds managed by Berkowitz, including the Fairholme Fund and the Fairholme Focused Income Fund. You can view the latest guru trades by clicking “latest guru trades” under the Gurus tab.
Disclosure: No positions.
