Bruce Berkowitz (Trades, Portfolio), leader of Fairholme Capital Management, disclosed this week that his firm’s top six trades during the second quarter included new positions in Commercial Metals Co. (CMC, Financial) and Intel Corp. (INTC, Financial) and the closure of its positions in AT&T Inc. (T, Financial), CVS Health Corp. (CVS, Financial), Verizon Communications Inc. (VZ) and TC Energy Corp. (TRP, Financial).
The Miami-based firm seeks companies with good management and deeply undervalued share prices according to Benjamin Graham’s investing strategy. Fairholme generally concentrates its investments in a few companies on the belief that a high number of stocks may lead to average returns.
As of June 30, Fairholme’s $1.21 billion equity portfolio contains 15 stocks, with four new positions and a quarterly turnover ratio of 2.61%. The top three sectors in terms of weight are real estate, energy and financial services, representing 90.64%, 4.54% and 1.60% of the equity portfolio.
Commercial Metals
Fairholme purchased 558,100 shares of Commercial Metals (CMC, Financial), giving the position 1.35% equity portfolio weight. Shares averaged $30.99 during the second quarter; the stock is significantly overvalued based on Tuesday’s price-to-GF Value ratio of 1.44.
GuruFocus ranks the Irving, Texas-based steel company’s profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7 and an operating margin that is near a 10-year high of 8.25% and has increased approximately 15% per year on average over the past five years.
Other gurus with holdings in Commercial Metals include Richard Snow (Trades, Portfolio)’s Snow Capital Management and Chuck Royce (Trades, Portfolio)’s Royce Investment Partners.
Intel
Fairholme purchased 157,500 shares of Intel (INTC, Financial), giving the position 0.70% equity portfolio weight. Shares averaged $58.84 during the second quarter; the stock is modestly undervalued based on Tuesday’s price-to-GF Value ratio of 0.85.
GuruFocus ranks the Santa Clara, California-based semiconductor giant’s profitability 9 out of 10 on several positive investing signs, which include a 3.5-star business predictability rank and an operating margin that has increased approximately 4.7% per year on average over the past five years and outperforms more than 90% of global competitors.
Gurus with large holdings in Intel include PRIMECAP Management (Trades, Portfolio), Ken Fisher (Trades, Portfolio)’s Fisher Investments and Seth Klarman (Trades, Portfolio)’s Baupost Group.
AT&T
The firm sold 398,800 shares of AT&T (T, Financial), knocking off 1% of the equity portfolio. Shares averaged $30.11 during the second quarter; the stock is fairly valued based on Tuesday’s price-to-GF Value ratio of 0.94.
GuruFocus ranks the Dallas-based telecommunications company’s financial strength 3 out of 10 on several warning signs, which include a low Piotroski F-score of 3, a weak Altman Z-score of 0.86 and interest coverage and debt ratios that underperform more than 60% of global competitors.
CVS Health
Fairholme sold 147,000 shares of CVS Health (CVS, Financial), trimming 0.91% of its equity portfolio. Shares averaged $81.74 during the second quarter; the stock is modestly overvalued based on Tuesday’s price-to-GF Value ratio of 1.18.
GuruFocus ranks the Woonsocket, Rhode Island-based health care company’s financial strength 4 out of 10 on the back of interest coverage and debt ratios underperforming more than 72% of global competitors.
Verizon
The firm sold 76,900 shares of Verizon (VZ), disconnecting 0.37% of its equity portfolio. Shares averaged $57.40 during the second quarter; the stock is fairly valued based on Tuesday’s price-to-GF Value ratio of 0.96.
GuruFocus ranks the New York-based telecommunications company’s profitability 7 out of 10 on the back of profit margins outperforming more than 80% of global competitors despite three-year revenue and earnings growth rates underperforming more than 55% of global telecom companies.
Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) owns 158,824,575 shares of Verizon, unchanged from the March quarter filing.
TC Energy
The firm sold 60,600 shares of TC Energy (TRP, Financial), cutting off 0.23% of the equity portfolio. Shares averaged $49.93 during the second quarter; the stock is fairly valued based on Tuesday’s price-to-GF Value ratio of 1.01.
GuruFocus ranks the Canadian energy company’s profitability 6 out of 10: Although the company’s profit margins outperform more than 82% of global competitors, three-year revenue and earnings growth rates are outperforming just over half of global energy companies.
