Bruce Berkowitz (Trades, Portfolio)’s first-quarter portfolio signaled a change in direction after pursuing a failed investment in Sears for years.
The Fairholme Fund (Trades, Portfolio) manager plunged into Vista Outdoor Inc. (VSTO, Financial) and Vistra Energy Corp. (VST, Financial) and took smaller stakes in Oaktree Capital Group (OAK, Financial), AT&T Inc. (T, Financial) and Clipper Realty Inc. (CLPR, Financial) in the first quarter, he disclosed this week. He also continued to chop losing positions in languishing Sears Holdings Corp. (SHLD, Financial) and Seritage Growth Properties (SRG, Financial).
Berkowitz owned Sears for more than a decade, loading up on shares through 2015 as its price plummeted. In 2008, he told Kiplinger’s in an interview that the worst thing that could happen to the company would be that “It gets slowly liquidated, or Eddie Lampert, its chairman, takes the company private. But I don't think he'd do that to shareholders,” he said.
He also said he didn’t buy Sears “based on the business.”
There's too much retail in the U.S. If the retail works, then it's a grand slam home run,” he said. “We invested because of the company's real estate holdings. It has some fabulous locations -- a Kmart in Bridgehampton, N.Y., and a Sears on PGA Boulevard in West Palm Beach, Fla., for instance. The real estate alone is conservatively -- and I mean conservatively -- worth $90 per share [the stock traded at $53 in mid November].
In the past 10 years, the stock has plunged 94% although it has increased from historical lows in February of around $2.07 per share to $3.60 per share at close Friday.
Pushing the stock up was encouraging news that the company would partner with Amazon to provide tire installation and balancing for customer who purchased the tires on Amazon.com (AMZN). The deal reflected another step in a partnership between the two entities, who made a deal in July for Sears to start selling Kenmore appliances on Amazon’s website.
But on May 14, Sears announced it was considering a sale of the Kenmore brand, along with its Sears Home Improvement Products and Parts Direct businesses of its Sears Home Services division. ESL Investments, the hedge fund that Sears’ CEO Eddie Lampert owns, may ultimately by the assets.
Lampert seemed unlikely to liquidate the company as Berkowitz suggested. On May 9, he said Sears was “fighting like hell” to save the business.
“To make it possible, we must continue to take actions to right-size the company, increase liquidity and capitalize on the value of our brands in order to get the runway and flexibility we need. Our hard work continues in 2018, and we remain focused on strengthening our financial position, continuing our operational momentum, and putting our company on the right path for the future,” he said in a blog post.
Bruce Berkwitz reduced his position in Sears by 27.3% in the first quarter, selling 6,584,504 shares. The price per share for the quarter averaged $2.70. He held 17,499,797 shares in his Fairholme Capital Management portfolio at first quarter-end, totaling 6.67% of its space.
New buys
Vista Outdoor Inc. (VSTO, Financial)
Berkowitz purchased 2,789,700 shares of Vista Outdoor Inc., giving it 6.5% portfolio weight. The stock’s first-quarter share price averaged $16.
Vista Outdoor Inc. has a market cap of $797.140 million; its shares were traded around $13.88 with and P/S ratio of 0.34.
Vistra Energy Corp. (VST, Financial)
Berkowitz purchased 1,039,000 shares of Vistra Energy, giving it 3.09% portfolio weight. The stock’s first-quarter share price averaged $19.
Vistra Energy Corp. has a market cap of $12.03 billion; its shares were traded around $23.01 with and P/S ratio of 2.01.
Oaktree Capital Group LLC (OAK, Financial)
Berkowitz purchased 84,000 shares of Oaktree Capital Group, giving it 0.47% portfolio weight. The stock’s first-quarter share price averaged $43.
Oaktree Capital Group LLC has a market cap of $6.26 billion; its shares were traded around $39.80 with a P/E ratio of 11.33 and P/S ratio of 1.66. The trailing 12-month dividend yield of Oaktree Capital Group LLC stocks is 9.03%. The forward dividend yield of Oaktree Capital Group LLC stocks is 9.62%.
Berkowitz purchased 80,000 shares of AT&T Inc., giving it 0.41% portfolio weight. The stock’s first-quarter share price averaged $37.
AT&T Inc. has a market cap of $196.82 billion; its shares were traded around $32.05 with a P/E ratio of 6.48 and P/S ratio of 1.24. The trailing 12-month dividend yield of AT&T Inc. stocks is 6.18%. The forward dividend yield of AT&T Inc. stocks is 6.26%. AT&T Inc. had an annual average earnings growth of 1.6% over the past 10 years.
Clipper Realty Inc. (CLPR, Financial)
Berkowitz purchased 280,000 shares of Clipper Realty, giving it 0.34% portfolio weight. The stock’s first-quarter share price averaged $9.
Clipper Realty Inc. has a market cap of $163.520 million; its shares were traded around $9.18 with and P/S ratio of 1.56. The trailing 12-month dividend yield of Clipper Realty Inc. stocks is 4.14%. The forward dividend yield of Clipper Realty Inc. stocks is 4.23%.
