Francis Chou (Trades, Portfolio), manager of Chou Associates Management, disclosed this week that his firm’s top sells during the second quarter included reductions to its holdings in Resolute Forest Products (RFP, Financial), Goldman Sachs Group Inc. (GS, Financial) and Citigroup Inc. (C, Financial). The firm also cashed out its position in Bank of America Corp. (BAC, Financial), a major bank holding of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial).
Chou Associates seeks long-term capital appreciation by buying bargain stocks and getting the returns slowly. The firm focuses on the strengths of individual companies through detailed analysis of the company’s balance sheet, cash flow characteristics, profitability, industry position, special strengths, future growth potential and management ability.
As of June, Chou’s $228.7 million equity portfolio contains 19 stocks with no new positions. The fund’s top three sectors in terms of weight are materials, financial services and health care, representing 35.16%, 31.75% and 26.86% of the equity portfolio.
Resolute Forest Products
Chou sold 619,000 shares of Resolute Forest Products (RFP, Financial), chopping 13.58% of the holding and 3.06% of the equity portfolio. Shares averaged $13.96 during the second quarter; the stock is significantly overvalued based on Friday’s price-to-GF Value ratio of 1.52.
GuruFocus ranks the Montreal-based forest products company’s financial strength 5 out of 10: The company has a weak Altman Z-score of 1.42 despite a high Piotroski F-score of 8 and debt ratios that outperform more than 60% of global competitors.
Other gurus with holdings in Resolute Forest Products include Prem Watsa (Trades, Portfolio)’s Fairfax Financial Holdings Ltd. (TSX:FFH, Financial) and Donald Smith & Co.
Goldman Sachs
Chou sold 6,900 shares of Goldman Sachs (GS, Financial), slashing 49.29% of the position and 1.02% of the equity portfolio. Shares averaged $357.12 during the second quarter; the stock is modestly overvalued based on Friday’s price-to-GF Value ratio of 1.20.
GuruFocus ranks the New York-based investment bank’s financial strength 3 out of 10: Although the company has a high Piotroski F-score of 7, its equity-to-asset and debt-to-equity ratios underperform more than 80% of global competitors.
Gurus with large holdings in Goldman Sachs include Dodge & Cox and Ken Fisher (Trades, Portfolio).
Citigroup
Chou sold 10,000 shares of Citigroup (C, Financial), slicing 14.77% of the stake and 0.33% of the equity portfolio. Shares averaged $74.03 during the second quarter; the stock is fairly valued based on Friday’s price-to-GF Value ratio of 1.04.
GuruFocus ranks the New York-based bank’s financial strength 3 out of 10 on the back of debt ratios underperforming more than 75% of global competitors despite a high Piotroski F-score of 8.
Bank of America
Chou sold 8,376 shares of Bank of America (BAC, Financial), cashing out the position and reducing the portfolio by 0.15%. Shares averaged $40.96 during the second quarter; the stock is significantly overvalued based on Friday’s price-to-GF Value ratio of 1.31.
GuruFocus ranks the Charlotte, North Carolina-based bank’s financial strength 3 out of 10 on the back of cash-to-debt and debt-to-equity ratios that underperform more than 68% of global competitors.
Berkshire owns over 1 billion shares of Bank of America, giving the position 14.45% equity portfolio weight. The bank is Berkshire’s second-largest holding according to top 10 holdings statistics, a Premium feature of GuruFocus.
