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James Li
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Bruce Berkowitz Slims Berkshire Holding, Axes Kraft Heinz

Fairholme Fund leader reports 4th-quarter portfolio

Bruce Berkowitz (Trades, Portfolio), founder and managing partner of Fairholme Capital Management, disclosed this week that his firm's top trades during the fourth quarter included a significant reduction to its holding in Warren Buffett (Trades, Portfolio)'s insurance conglomerate Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) and the closure of its holdings in The Kraft Heinz Co. (NASDAQ:KHC) and Simon Property Group Inc. (NYSE:SPG).

The Miami-based firm follows Berkowitz's belief that the more diversified the portfolio is, the more likely the performance will be average. Fairholme also applies Ben Graham's investing principles: The firm concentrates its investments in a relatively small number of companies that either have solid management teams or deeply-low valuations in which a catalyst can close the gap between the price and intrinsic value in a reasonable timeframe.


As of the quarter-end, Fairholme's $1.24 billion equity portfolio contains 20 stocks, with nine new positions and a turnover ratio of 5%. Over 90% of the portfolio is dedicated to the real estate sector, up from the third-quarter 2020 weight of 84.11%.


Berkshire Hathaway

Fairholme sold 257,145 Class B shares of Berkshire Hathaway (NYSE:BRK.B), axing 81.22% of the position and 8.39% of the equity portfolio. Shares averaged $220.33 during the fourth quarter.


GuruFocus ranks the Omaha, Nebraska-based insurance conglomerate's profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a three-star business predictability rank and a net profit margin that outperforms 76.94% of global competitors.


Kraft Heinz

The firm sold 266,300 shares of Kraft Heinz (NASDAQ:KHC), curbing the equity portfolio 1.22%. Shares averaged $32.50 during the fourth quarter.


GuruFocus ranks the Pittsburgh-based packaged food giant's financial strength 4 out of 10: Although the company has a solid Piotroski F-score of 6, debt ratios are underperforming over 60% of global competitors.


Simon Property Group

Fairholme sold 52,200 shares of Simon Property Group (NYSE:SPG), trimming the equity portfolio 0.52%. Shares averaged $76.52 during the fourth quarter.


GuruFocus ranks the Indianapolis shopping mall real estate investment trust's financial strength 3 out of 10 on several warning signs, which include a low Altman Z-score of 0.81 and debt ratios underperforming over 60% of global competitors.


Despite low financial strength, Simon Property Group has a profitability rank of 8, driven by a four-star business predictability rank and a return on assets that outperforms over 65% of global REITs.


Brief summary of firm's top four new buys

Fairholme's top four new buys were in Cincinnati Financial Corp. (NASDAQ:CINF), Enbridge Inc. (NYSE:ENB), CVS Health Corp. (NYSE:CVS) and Old Republic International Corp. (NYSE:ORI).

Cincinnati Financial generates income through premiums on property and casualty insurance policies. GuruFocus ranks the company's financial strength 6 out of 10 on the back of interest coverage and debt ratios outperforming over 65% of global competitors.


GuruFocus ranks Calgary, Alberta-based energy company Enbridge's financial strength 3 out of 10 on several warning signs, including a low Altman Z-score of 0.81 and debt ratios that underperform over 70% of global competitors.


Likewise, Woonsocket, Rhode Island-based pharmacy giant CVS's debt ratios underperform over 60% of global health care competitors.


Disclosure: No positions.

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