Earlier this week, the Fairholme Fund (Trades, Portfolio) released its portfolio for the second quarter.
The fund is part of Bruce Berkowitz (Trades, Portfolio)’s Miami-based Fairholme Capital Management. As he believes that more diversified portfolios lead to more average returns, the guru invests in a concentrated number of undervalued stocks whose underlying companies have good management teams and steady cash flow generation.
For the three months ended May 31, the NPORT-P filing shows the fund entered a new position in Berkshire Hathaway Inc. (BRK.B, Financial) Class B stock, increased its holding of Enterprise Products Partners LP (EPD, Financial) and reduced its investment in Commercial Metals Co. (CMC, Financial).
Investors should be aware that, just like 13F reports, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these limited filings can provide valuable information.
Berkshire Hathaway
The fund invested in 3,300 shares of Berkshire Hathaway’s (BRK.B, Financial) Class B stock, allocating 0.10% of the equity portfolio to the holding. The stock traded for an average price of $315.96 per share during the quarter.
It previously sold out of the stock in the fourth quarter of 2022.
The Omaha, Nebraska-based insurance conglomerate, which is run by Warren Buffett (Trades, Portfolio), has a $763.85 billion market cap; its class B shares were trading around $349.20 on Friday with a price-earnings ratio of 102.25, a price-book ratio of 1.53 and a price-sales ratio of 2.72.
The GF Value Line suggests the stock is modestly overvalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 66 out of 100, the GF Score indicates the company has poor performance potential. While it received a high momentum rating, its profitability, growth and financial strength ranks are more moderate and its value grade is low.
Of the gurus invested in the Class B stock, Bill Gates (Trades, Portfolio)’ foundation trust has the largest stake with 0.90% of its outstanding shares. Tom Russo (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Chris Davis (Trades, Portfolio) also have significant holdings.
Enterprise Products Partners
Fairholme boosted the Enterprise Products Partners (EPD, Financial) stake by 3.35%, picking up 75,000 shares, which impacted the equity portfolio by 0.18%. Shares traded for an average price of $25.94 each during the quarter.
The fund now holds 2.31 million shares total, which account for 5.52% of the equity portfolio and its second-largest holding. GuruFocus estimates it has gained 13.64% on the investment so far.
The midstream oil and gas company headquartered in Houston has a market cap of $57.41 billion; its shares were trading around $26.40 on Friday with a price-earnings ratio of 10.39, a price-book ratio of 2.14 and a price-sales ratio of 1.
According to the GF Value Line, the stock is modestly undervalued currently.
Further, the GF Score of 89 implies it has good outperformance potential, driven by high ranks for profitability, growth, value and momentum as well as a more moderate financial strength rating.
With a 0.19% stake, Berkowitz is the company’s largest guru shareholder. First Eagle Investment (Trades, Portfolio) and the Fairholme Focused Income Fund (Trades, Portfolio) also have large positions in Enterprise Products Partners.
Commercial Metals
The fund curbed the Commercial Metals (CMC, Financial) position by 31.18%, selling 189,500 shares. The transaction had an impact of -0.98% on the equity portfolio. The stock traded for an average per-share price of $46.26 during the quarter.
Fairholme now holds a total of 418,200 shares, which occupy 1.68% of the equity portfolio. The stock is its third-largest position. GuruFocus says it has gained an estimated 61.04% on the investment so far.
The Irving, Texas-based steel and metal manufacturer has a $6.59 billion market cap; its shares were trading around $56.42 on Friday with a price-earnings ratio of 6.97, a price-book ratio of 1.64 and a price-sales ratio of 0.75.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
The company has good outperformance potential on the back of a GF Score of 82. It raked in high ratings for four of the criteria, but the value rank was low.
Berkowitz is Commercial Metals’ largest guru shareholder with a 1.09% stake. In addition to both Fairholme Fund (Trades, Portfolio)s, the stock is held by Chuck Royce (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), First Eagle, Joel Greenblatt (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and Jeremy Grantham (Trades, Portfolio).
Additional trades and performance
During the quarter, the fund also cut back its investment in preferred shares of Federal National Mortgage Association (FNMAS.PFD, Financial), also known as Fannie Mae.
The real estate sector has the largest representation in Fairholme’s $1.06 billion equity portfolio, which is composed of seven stocks, at 91.01%.
The fund returned -20.49% in 2022, underperforming the S&P 500 Index’s return of -18.11%.
