Bruce Berkowitz (Trades, Portfolio), founder and managing member of Fairholme Capital Management, disclosed in a regulatory filing that the firm's top trades during the third quarter included boosts to its holdings of Berkshire Hathaway Inc. (BRK.B, Financial) and Enterprise Products Partners LP (EPD, Financial), a reduction to its stake in Kinder Morgan Inc. (KMI, Financial) and the closure of its positions in D.R. Horton Inc. (DRI, Financial) and West Fraser Timber Co. Ltd. (WFG, Financial).
The Florida-based firm concentrates its investments in a few securities. Fairholme looks for companies with solid management teams and are deeply undervalued based on Benjamin Graham’s principles. The firm also invests in mediocre companies in which a catalyst event may narrow the gap between the share price and intrinsic value.
As of September, the firm’s $1.03 billion equity portfolio contains 13 stocks with a quarterly turnover ratio of 2%. The top three sectors in terms of weight are real estate, energy and basic materials, which represent 76.18%, 9.83% and 8.20% of the equity portfolio.
Investors should be aware that portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Berkshire Hathaway
Fairholme purchased 48,200 Class B shares of Berkshire Hathway (BRK.B, Financial), boosting the position by 97.72% and its equity portfolio by 1.25%.
Class B shares of Berkshire averaged $284.56 during the third quarter; the stock is modestly overvalued based on its price-to-GF Value ratio of 1.26 as of Wednesday.
Led by CEO Warren Buffett (Trades, Portfolio), the Omaha, Nebraska-based insurance conglomerate owns a wide range of businesses. Berkshire has a GF Score of 80 out of 100 based on a growth rank of 10 out of 10, a momentum rank of 9 out of 10, a profitability rank of 7 out of 10, a financial strength rank of 5 out of 10 and a GF Value rank of 1 out of 10.
Other gurus with holdings in Berkshire include Bill Gates (Trades, Portfolio)’ foundation trust and Tom Gayner (Trades, Portfolio)’s Markel Gayner Asset Management.
Enterprise Products Partners
The firm added 290,000 shares of Enterprise Products Partners (EPD, Financial), boosting the position by 8.07% and its equity portfolio by 0.67%.
Shares of Enterprise Products Partners averaged $25.80 during the third quarter; the stock is significantly undervalued based on its price-to-GF Value ratio of 0.65.
The Houston-based midstream oil and natural gas company has a GF Score of 86 out of 100 based on a GF Value rank of 10 out of 10, a profitability rank of 8 out of 10, a growth rank of 7 out of 10, a momentum rank of 6 out of 10 and a financial strength rank of 5 out of 10.
Enterprise Products Partners has a profitability rank of 8 out of 10, driven by several positive investing signs, which include 10 years of positive operating income over the past decade and returns on equity and assets that outperform more than 66% of global competitors.
Kinder Morgan
The firm sold 431,400 shares of Kinder Morgan (KMI, Financial), chopping 54.84% of the position and 0.60% of its equity portfolio.
Shares of Kinder Morgan averaged $17.78 during the third quarter; the stock is modestly undervalued based on its price-to-GF Value ratio of 0.85 as of Wednesday.
The Houston-based midstream energy company has a GF Score of 81 out of 100 based on a momentum rank of 9 out of 10, a profitability rank of 8 out of 10, a GF Value rank of 7 out of 10, a growth rank of 5 out of 10 and a financial strength rank of 4 out of 10.
D.R. Horton
The firm sold all 71,000 shares of D.R. Horton (DHI), trimming 0.39% of its equity portfolio.
Shares of D.R. Horton averaged $73.57 during the third quarter; the stock is modestly undervalued based on its price-to-GF Value ratio of 0.73 as of Wednesday.
The Arlington, Texas-based homebuilding company has a GF Score of 99 out of 100, driven by a rank of 10 out of 10 for profitability, growth and momentum, a GF Value rank of 9 out of 10 and a financial strength rank of 7 out of 10.
D.R. Horton’s profitability ranks 10 out of 10 on several positive investing signs, which include a five-star business predictability rank, a high Piotroski F-score of 7 out of 9 and an operating margin that has increased approximately 15% per year on average over the past five years and is outperforming more than 85% of global competitors.
West Fraser Timber
Fairholme sold all 11,000 shares of West Fraser Timber (WFG, Financial), trimming 0.07% of its equity portfolio.
Shares of West Fraser Timber averaged $86.75 during the third quarter; the stock is fairly valued based on its price-to-GF Value ratio of 0.91 as of Wednesday.
The Vancouver-based lumber company has a GF Score of 97 out of 100 based on a growth rank of 10 out of 10, a GF Value rank of 7 out of 10 and a rank of 9 out of 10 for profitability, financial strength and momentum.
