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Bruce Berkowitz Buys Buffett's Berkshire and Kraft Heinz in the 1st Quarter

Fairholme leader introduces 4 new holdings to equity portfolio

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James Li
May 19, 2020
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Bruce Berkowitz (Trades, Portfolio), founder and managing partner of the Fairholme Fund (Trades, Portfolio), disclosed last week that his top buys for the first quarter included a position expansion in Warren Buffett (Trades, Portfolio)'s conglomerate Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) and new holdings in The Kraft Heinz Co. (KHC, Financial), Occidental Petroleum Corp. (OXY, Financial), Simon Property Group Inc. (SPG, Financial) and Western Midstream Partners LP (WES, Financial).

Berkowitz concentrates his investments in a relatively small number of companies, believing that the more diversified the portfolio is, the more likely the portfolio performance will be just average. The founder of the Miami-based firm applies Benjamin Graham's strategy in his stock picking, seeking companies that have solid management, generate high free cash flows and are trading at a deep discount to intrinsic value.


As of the quarter-end, Berkowitz's $510 million equity portfolio contains seven stocks with a turnover ratio of 13%. Nearly 88% of the equity portfolio is dedicated to the real estate sector, with The St. Joe Co. (

JOE, Financial) occupying 87.23% of the portfolio.


Berkshire Hathaway

Berkowitz added 227,525 Class B shares of Berkshire Hathaway, increasing the position 1,396.29% and the equity portfolio 8.16%. Shares averaged $213.25 during the first quarter.


The Omaha, Nebraska-based conglomerate operates a wide range of subsidiaries, which primarily include insurance companies like Geico and Berkshire Hathaway Reinsurance Group. For its investment portfolio, Berkshire applies a four-criterion investing approach stemmed from Buffett's mentor Graham: Buffett and co-manager

Charlie Munger (Trades, Portfolio) seek companies that have understandable businesses, favorable long-term prospects, competent management and attractive valuations.

GuruFocus ranks Berkshire Hathaway's profitability 7 out of 10 on the back of three-year earnings growth rates outperforming over 88% of global competitors despite revenue declining over the trailing 12 months.


Gurus with large holdings in Buffett's conglomerate include

Bill Gates (Trades, Portfolio)' foundation trust, Diamond Hill Capital (Trades, Portfolio) and Bill Ackman (Trades, Portfolio)'s Pershing Square.


Kraft Heinz

Berkowitz purchased 444,500 shares of Kraft Heinz, giving the holding 2.16% weight in the equity portfolio. While shares averaged $27.55 during the first quarter, the stock is now trading close to its 52-week high of $33.78 despite languishing near a 52-week low of $22.82 in March.


The Pittsburgh-based company produces a wide range of packaged foods, including Kraft cheese, Heinz ketchup, Oscar Mayer hot dogs and Philadelphia cream cheese. The company said on April 30 that net sales for the first quarter were $6.2 billion, up 3.3% from the prior-year quarter. Organic net sales increased 6.2% year over year, reflecting an acceleration of consumer product demand related to the coronavirus pandemic.


GuruFocus ranks Kraft Heinz's profitability 7 out of 10: Even though revenues are still declining approximately 1.7% per year on average over the past three years, a rate that underperforms 71.24% of global competitors, the company has a high Piotroski F-score of 7, a

Joel Greenblatt (Trades, Portfolio) return on capital that outperforms 92.32% of global packaged food companies and an operating margin that has increased approximately 14% per year on average over the past five years.


Berkshire owns 325,442,152 shares of Kraft Heinz as of the quarter-end. The company occupies 4.59% of Berkshire's equity portfolio, ranking sixth in terms of portfolio weight.


Occidental Petroleum

Berkowitz purchased 429,490 shares of Occidental Petroleum, giving the position 0.98% equity portfolio space. Shares averaged $33.31 during the first quarter.


The Houston-based company explores and produces oil around the globe, with operations in the U.S., Latin America and the Middle East. GuruFocus ranks Occidental's profitability 7 out of 10 on the heels of operating margins and three-year revenue growth rates outperforming over 60% of global competitors despite returns underperforming over 57% of global energy companies.


Gurus with large holdings in Occidental include Dodge & Cox,

Carl Icahn (Trades, Portfolio) and Buffett's Berkshire.


Simon Property Group

Berkowitz purchased 49,000 shares of Simon Property Group, giving the position 0.53% weight in the equity portfolio. Shares averaged $120.76 during the first quarter.


The Indianapolis-based real estate investment trust operates a portfolio of 207 retail properties, including 106 traditional malls and 69 premium outlets. GuruFocus ranks Simon's profitability 9 out of 10 on several positive investing signs, which include a four-star business predictability rank, expanding operating margins and a return on equity that outperforms 99% of global competitors.


Despite high profitability, Simon's financial strength ranks a low 3 out of 10 on the back of equity-to-asset and debt-to-equity ratios underperforming over 97% of global competitors. The website warns that the REIT has increased its long-term debt by over $4.3 billion over the past three years, suggesting a high dependence on debt to grow its business.


Western Midstream Partners

Berkowitz purchased 290,000 shares of Western Midstream Partners, giving the position 0.18% weight in the equity portfolio. Shares averaged $13.99 during the first quarter.


The Woodlands, Texas-based company owns, operates, acquires and develops midstream energy assets. GuruFocus ranks the company's profitability 8 out of 10 on the heels of operating margins that have expanded over the past five years and are outperforming over 90% of global competitors. Despite this, revenues have declined approximately 7.1% per year on average over the past three years, a rate that underperforms 73.87% of global energy companies.


Disclosure: No positions.

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