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. (BRK.A, Financial)(BRK.B, Financial) and the closure of its holdings in The Kraft Heinz Co. (KHC, Financial) and Simon Property Group Inc. (SPG, Financial).
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 (BRK.B, Financial), 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 (KHC, Financial), 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 (SPG, Financial), 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. (CINF, Financial), Enbridge Inc. (ENB, Financial), CVS Health Corp. (CVS, Financial) and Old Republic International Corp. (ORI, Financial).
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.
Read more here:
- John Paulson's Top 5 Buys in the 4th Quarter
- Top 5 4th-Quarter Sells of Chase Coleman's Tiger Global
- Warren Buffett's Berkshire Reveals 4th-Quarter Trades
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