Summary Bruce Berkowitz is a bottom-up stock picker like Warren Buffett. He does keep an eye on the macro trends and identify the sectors he wants to stay in. As of 1Q09, he stayed in Healthcare and Defense sectors that he believes will do well in recessions, and he took advantages of the low prices offered by the market and solidified positions in companies he has strong convictions on. Most noticeably, he ventured into Financials with purchases in American Express.
Introduction
Among all the Investment Gurus that we track here at GuruFocus.com, head of The Fairholme Capital Management, Bruce Berkowitz attracts special attention from viewers, users and ourselves. This is not just because of his outstanding long-term performance, it is also because of his respect towards investors of his fund. He eats his own cooking and invests heavily in his own fund; during his periodic shareholders conference calls, he candidly discusses what is on his mind about the stocks that he owns. And because he typically owns relatively a small number of stocks, he can drill on each stock in these conference calls and articulate the reasons behind his investment decisions in stocks. For investors in his fund and investors who watch him and try to mimic a successful value-investor, making sense of the stocks he owns helps a lot.
In our opinion, Bruce Berkowitz at least matches Warren Buffett in terms of respectful attitude towards investors and he is as close as you can get if you are looking for a manager managing your money in Warren Buffett’s style.
How Does Bruce Berkowitz Select Stocks
Bruce Berkowitz selects his stocks based on a very disciplined Free Cash Flow (FCF) criteria.
Bruce Berkowitz described how he uses FCF analysis in the Introduction to Part IV Go With The Flow in the latest Edition of Benjamin Graham and David Dodd book Securitiy Analysis (Page 339 to347). Bruce and his team begin with FCF as calculated according to the text book: adding back the non-cash item back to net income.
Then they calculate the capital expenditure required to keep the business in a steady state. Further, he listed a few examples FCF is subjected to management discretion:companies often misstate the costs of employees’ pension and postretirement medical benefitscompanies often lowball what they pay managementlong-term supply contracts may be a source for accounting-derived profits that aren’t real on the positive side, there are company book expenses that are really investment for long-term growth
In the article he also used examples of Mohawk, Echostar, and Leucadia National to illustrate how to unearth values where one least expect them. It is a good article and we highly recommend it.
Performance Review
Despite of the market crash of 2008-2009, and a basically “lost decade” for equity investors, Bruce Berkowitz’s fund returned annualize rate of 9.01% since inception of Dec. 29, 1999 through March 31, 2009. Money invested with him is not lost at all.
YTD through May 29, Fairholme Fund returned 12.09 % compared to the S&P 500 Index return of 1.76%. Once again Bruce Berkowitz is on his way of beating the index.
And since the beginning of second quarter, his stock holdings has outperformed the benchmark S&P 500 by a large margin:
What is Bruce Berkowitz Thinking Now
In this recent video interview with Bloomberg, when asked how he thinks about the market now, Bruce Berkowitzstated that he loved it, it is a perfect time for business people and for stock selectors. He has double digit percentage of cash and ready to invest. He wishes the stock stay low for next ten years.
1Q09 Sector Allocation
According to the Sector Weighting Data provided by GuruFocus, compared to in 4Q08, during 1Q09 Bruce Berkowitz continues to overweight in health care (46.5%). He sold out most of his Oil & Gas holdings (CNQ), but increased noticeably holdings in Financials.
Being a bottom-up stock picker, Bruce Berkowitz apparently also pays attention to dynamics in sectors. In this recent video interview with Bloomberg, he thinks Healthcare and Defense companies generate good cash flow in relationship to the their prices and they should do well in this recession environment.
1Q09 Top Holdings
Following the sector concentrations, Bruce Berkowitz also concentrates his money on the following stocks: Pfizer Inc ( PFE), Sears Holdings Corp. ( SHLD), Forest Laboratories Inc. ( FRX), WellPoint Inc. ( WLP), American Express Company ( AXP), and Northrop Grumman Corp. ( NOC).
No. 1: Pfizer Inc ( PFE), Weightings: 21.76% - 88,241,991 Shares
Pfizer Inc is a research-based global pharmaceutical company. Pfizer Inc has a market cap of $98.81 billion; its shares were traded at around $14.69 with a P/E ratio of 6.1 and P/S ratio of 2. The dividend yield of Pfizer Inc stocks is 4.4%. Pfizer Inc had an annual average earning growth of 11% over the past 10 years. GuruFocus rated Pfizer Inc the business predictability rank of 2.5-star.
Bruce Berkowitz kept a very small positions in PFE since year 2000. It was until 2Q08 when PFE stock dropped substantially from $30+ to $17 per share when Bruce Berkowitz bought more than 70 million shares of the big pharm company. Bruce Berkowitz thinks the stock is generating double digit rate of free cash flow, AAA credit rating, a broad product line and distribution network, and its products are essential in saving lives and curing diseases, and a new CEO who is making the right moves. Bruce considers the proposed merger with Wyeth brighten the future of the company even further. With the merger, the company effectively accomplished smoothing its bumpy revenue growth and alleviating the concern of shrinking drug pipeline of new drugs.
For details on why Bruce Berkowitz has so much conviction on this one stock, please read this, this and this article.
Unfortunately, in short term, because of the proposed merger with Wyeth (WYE), Bruce Berkowitz finds him in the opposite side of the trading with other Investment Gurus such as John Paulson. As we reported in this story, because of the arbitrage gap between PFE and WYE, John Paulson has spent $1.3 billion on WYE to capture the arbitrage gap. In order for the arbitrage to work, John Paulson has to short equivalent number of PFE. That explains why the PFE stock continues to be held at the current depressed level.
No. 2: Sears Holdings Corp. ( SHLD), Weightings: 11.87% - 14,338,939 Shares
GuruFocus has its shares of coverage of this brain baby of Investment Guru Edward Lampert. It turns out, Bruce Berkowitz also own a good portion of this retail company after Edward Lampert.
Sears Holdings Corporation is the parent of retailing companies Kmart and Sears Roebuck and Co. Sears Holdings Corp. has a market cap of $6.89 billion; its shares were traded at around $56.76 with a P/E ratio of 21.4 and P/S ratio of 0.1. Sears Holdings Corp. had an annual average earning growth of 45% over the past 5 years.
Bruce Berkowitz started to buy the stock as early as 2005. His major purchase happened in the period from 3Q07 to 3Q08, when the stock price was much high. In the Bloomberg video you just watched, Bruce Berkowitz cited the amount of cash the company is generating and the solid balance sheet as the reasons he liked the stock. He discussed this stock in grand detail in multiple occasions, GuruFocus had gathered and presented his SHLD investment thesis in this article.
No. 3: Forest Laboratories Inc. ( FRX), Weightings: 7.98% - 20,067,400 Shares
This is another Pharmaceutical company that Bruce Berkowitz owns.
Forest Laboratories Inc. develops, manufactures and sells both branded and generic forms of ethical drug products which require a physician's prescription as well as non-prescription pharmaceutical products sold over-the-counter. Forest Laboratories Inc. has a market cap of $6.96 billion; its shares were traded at around $23.12 with a P/E ratio of 6.6 and P/S ratio of 1.8. Forest Laboratories Inc. had an annual average earning growth of 30.7% over the past 10 years. GuruFocus rated Forest Laboratories Inc. the business predictability rank of 2.5-star.
Apparently, Bruce Berkowitz considers the value of FRX out-weights the risk of the effect of a Democratic administration can have over health care industry. He bought 12 million share of FRX in 2Q08, then hiked his position to 20 million share in the second half of 2008. FRX has been trading at prices much lower than his initial purchase prices, and Bruce Berkowitz is standing by his positions. As of March 31, 2009, he held 20 million shares, almost unchanged from a quarter earlier.
No. 4: WellPoint Inc. ( WLP), Weightings: 6.92% - 10,061,624 Shares
Talking about heavy exposure to healthcare, we encounter WellPoint the health benefit management company.
WellPoint Inc. is the largest publicly traded commercial health benefits company in terms of membership in the United States. WellPoint Inc. has a market cap of $23.22 billion; its shares were traded at around $46.78 with a P/E ratio of 7.8 and P/S ratio of 0.4. WellPoint Inc. had an annual average earning growth of 20.8% over the past 5 years.
Bruce Berkowitz does not think the risk of government dramatically change the health care system is of anything particular concern, according to this interview with Heilbrunn Center for Graham & Dodd:
Bruce Berkowitz has held WLP since the first quarter of 2008 and he has kept his position steadily at around 11-12 million shares. As of 1Q09, he sold about 2 million share of WLP, perhaps to “sell what is cheap to buy what is cheaper”
No. 5: American Express Company ( AXP), Weightings: 5.88% - 23,813,050 Shares
Bruce Berkowitz playing with Financials? Stay away from financials has been a prudent decision for Bruce Berkowitz and the decision has enabled him to avoid many pitfalls that other many value investors found themselves falling into in 2008. But in 2009, Bruce Berkowitz made a decisive move into Financials with American Express.
American Express Company is a credit card company. American Express Company has a market cap of $28.04 billion; its shares were traded at around $24.3 with a P/E ratio of 13.2 and P/S ratio of 1. The dividend yield of American Express Company stocks is 2.9%. American Express Company had an annual average earning growth of 1.3% over the past 10 years.
Bruce Berkowitz started to own this stock as far back as in 1999, but his interest has been insignificant until in 4Q08 when everything financial found itself approaching the ground quickly. In 4Q08, Bruce Berkowitz scooped up 13.5 million shares of AXp and he continued to buy another 10.3 million shares in 1Q09, bringing his total holding to 23.8 million share. All the shares bough during the past half a year are profitable now, up substantially.
No. 6: Northrop Grumman Corp. ( NOC), Weightings: 5.78% - 7,319,676 Shares
The speculations that the current Democratic government may cut back on defense expenses do not deter Bruce Berkowitz from investing in the defense companies. He owns Northrop Grumman Corp. ( NOC), General Dynamics (GD) and Boeing (BA).
Northrop Grumman Corporation is a high technology company providing innovative solutions in systems integration, defense electronics, and information technology for its U.S. and international military, government, and commercial customers as a prime contractor, principal subcontractor, team member, or preferred supplier. Northrop Grumman Corp. has a market cap of $15.68 billion; its shares were traded at around $47.96 with a P/E ratio of 8.5 and P/S ratio of 0.5. The dividend yield of Northrop Grumman Corp. stocks is 3.4%. Northrop Grumman Corp. had an annual average earning growth of 1.3% over the past 10 years.
Bruce Berkowitz started to build a position in NOC in 3Q08 with 4.3 million shares. In 4Q08, he increased his stake to 9.0 million shares. He actually sold 1.6 million shares in the first quarter of 2009. His 1Q09 holding is 7.3 million shares. In the context of the statements he made in the Bloomberg video, one has to view the sale as “to sell something cheap and buy something else cheaper”.
1Q09 Top Purchases
Bruce Berkowitz’s top purchases last quarter were American Express Company ( AXP), The St. Joe Company ( JOE), Hertz Global Holdings Inc. ( HTZ), and Spirit AeroSystems Holdings Inc. (SPR, Financial).
No. 1: American Express Company ( AXP) - Total: 23,813,050 Shares
Bruce Berkowitz’s purchase in the first quarter in AXP makes AXP one of his top holdings. This is an example of if you like a stock, you buy a very small position in the stock just so you won’t forget about the company. You wait for the right time to come and buy a truck load of the stock so you make a kill. Bruce Berkowitz practice this, so does Warren Buffett. Warren Buffett was said to like certain @#$%& who was dating someone else, so he waited until they broke up to make his moves. The same spirit is at work here.
No. 2: The St. Joe Company ( JOE) - Total: 18,456,326 Shares
Bruce added about 7.2 million shares to his stake in The St. Joe Company, bringing his total shares to 18.4 million shares. This another typical double down play on his part.
St. Joe Company is one of the Southeast's largest real estate operating companies. The St. Joe Company has a market cap of $2.24 billion; its shares were traded at around $24.39 with and P/S ratio of 8.4. The St. Joe Company had an annual average earning growth of 5.4% over the past 10 years.
Bruce Berkowitz commented on the investment in St. Joe Company in the February 11, 2009 conference call:
The informational arbitrage that Bruce Berkowitz talked about here is the airport that the US government is putting in the center of the land that St. Joe Company own. The airport is the latest major airport that US government ever built after Denver airport and is scheduled to open in 2010. To Bruce Berkowitz, the fund the government put in the airport, is as good as any free cash flow.
No. 3: Hertz Global Holdings Inc. ( HTZ) - Total: 42,738,138 Shares
Hertz Global Holdings is the world’s largest general use car rental company. It operates from approximately 8100 locations in 147 countries worldwide. Hertz is the number one airport car rental brand in the U.S. and at 69 major airports in Europe. Hertz Global Holdings Inc. has a market cap of $2.14 billion; its shares were traded at around $6.62 with a P/E ratio of 44.1 and P/S ratio of 0.2.
Once again Bruce Berkowitz is taking advantage of the low price in 1Q09 to accumulate shares in HTZ. He bought 12.3 million shares of HTZ in 3Q08 when the stock price averaged $7.57, 22 million shares in 4Q08 when stock price averaged $5.07, and 8.5 million more shares in 1Q09 when the stock price averaged $3.93. For an value investor, it is not about buying the stock and the stock price gyrating upwards toward the intrinsic value, it is about having faith in the intrinsic calculation and buying more shares when the stock goes down. At today’s price of $6.62 per share, Bruce Berkowitz’s investment is paying off handsomely.
No. 4: Spirit AeroSystems Holdings Inc. (SPR) - Total: 19,012,064 Shares
SPIRIT AEROSYSTEMS is the world's largest independent supplier of commercial airplane assemblies and components. In addition to its Kansas facility Spirit has operations in Tulsa and McAlester Okla. Prestwick Scotland and Samlesbury England. In the U.S. Spirit's core products include fuselages pylons nacelles and wing components. Additionally Spirit provides aftermarket customer support services including spare parts, maintenance/repair/overhaul, and fleet support services in North America and Europe. Spirit Europe produces wing components for a host of customers including Airbus. Spirit AeroSystems Holdings Inc. has a market cap of $1.89 billion; its shares were traded at around $13.52 with a P/E ratio of 7.7 and P/S ratio of 0.5.
Once again, double-down is at play here. Bruce Berkowitz started to buy into the stock (3 million shares) in 3Q08 when the stock price averaged $16. He bought more (12.6 million shares) in 4Q09 when the stock price averaged $10. and in 1Q09, he bought another 3.4 million shares when the stock price averaged $10. Today at stock price of $13.52, he stands for much gain.
Introduction
Among all the Investment Gurus that we track here at GuruFocus.com, head of The Fairholme Capital Management, Bruce Berkowitz attracts special attention from viewers, users and ourselves. This is not just because of his outstanding long-term performance, it is also because of his respect towards investors of his fund. He eats his own cooking and invests heavily in his own fund; during his periodic shareholders conference calls, he candidly discusses what is on his mind about the stocks that he owns. And because he typically owns relatively a small number of stocks, he can drill on each stock in these conference calls and articulate the reasons behind his investment decisions in stocks. For investors in his fund and investors who watch him and try to mimic a successful value-investor, making sense of the stocks he owns helps a lot.
In our opinion, Bruce Berkowitz at least matches Warren Buffett in terms of respectful attitude towards investors and he is as close as you can get if you are looking for a manager managing your money in Warren Buffett’s style.
How Does Bruce Berkowitz Select Stocks
Bruce Berkowitz selects his stocks based on a very disciplined Free Cash Flow (FCF) criteria.
Bruce Berkowitz described how he uses FCF analysis in the Introduction to Part IV Go With The Flow in the latest Edition of Benjamin Graham and David Dodd book Securitiy Analysis (Page 339 to347). Bruce and his team begin with FCF as calculated according to the text book: adding back the non-cash item back to net income.
Then they calculate the capital expenditure required to keep the business in a steady state. Further, he listed a few examples FCF is subjected to management discretion:companies often misstate the costs of employees’ pension and postretirement medical benefitscompanies often lowball what they pay managementlong-term supply contracts may be a source for accounting-derived profits that aren’t real on the positive side, there are company book expenses that are really investment for long-term growth
In the article he also used examples of Mohawk, Echostar, and Leucadia National to illustrate how to unearth values where one least expect them. It is a good article and we highly recommend it.
Performance Review
Despite of the market crash of 2008-2009, and a basically “lost decade” for equity investors, Bruce Berkowitz’s fund returned annualize rate of 9.01% since inception of Dec. 29, 1999 through March 31, 2009. Money invested with him is not lost at all.
YTD through May 29, Fairholme Fund returned 12.09 % compared to the S&P 500 Index return of 1.76%. Once again Bruce Berkowitz is on his way of beating the index.
And since the beginning of second quarter, his stock holdings has outperformed the benchmark S&P 500 by a large margin:
What is Bruce Berkowitz Thinking Now
In this recent video interview with Bloomberg, when asked how he thinks about the market now, Bruce Berkowitzstated that he loved it, it is a perfect time for business people and for stock selectors. He has double digit percentage of cash and ready to invest. He wishes the stock stay low for next ten years.
1Q09 Sector Allocation
According to the Sector Weighting Data provided by GuruFocus, compared to in 4Q08, during 1Q09 Bruce Berkowitz continues to overweight in health care (46.5%). He sold out most of his Oil & Gas holdings (CNQ), but increased noticeably holdings in Financials.
Being a bottom-up stock picker, Bruce Berkowitz apparently also pays attention to dynamics in sectors. In this recent video interview with Bloomberg, he thinks Healthcare and Defense companies generate good cash flow in relationship to the their prices and they should do well in this recession environment.
1Q09 Top Holdings
Following the sector concentrations, Bruce Berkowitz also concentrates his money on the following stocks: Pfizer Inc ( PFE), Sears Holdings Corp. ( SHLD), Forest Laboratories Inc. ( FRX), WellPoint Inc. ( WLP), American Express Company ( AXP), and Northrop Grumman Corp. ( NOC).
No. 1: Pfizer Inc ( PFE), Weightings: 21.76% - 88,241,991 Shares
Pfizer Inc is a research-based global pharmaceutical company. Pfizer Inc has a market cap of $98.81 billion; its shares were traded at around $14.69 with a P/E ratio of 6.1 and P/S ratio of 2. The dividend yield of Pfizer Inc stocks is 4.4%. Pfizer Inc had an annual average earning growth of 11% over the past 10 years. GuruFocus rated Pfizer Inc the business predictability rank of 2.5-star.
Bruce Berkowitz kept a very small positions in PFE since year 2000. It was until 2Q08 when PFE stock dropped substantially from $30+ to $17 per share when Bruce Berkowitz bought more than 70 million shares of the big pharm company. Bruce Berkowitz thinks the stock is generating double digit rate of free cash flow, AAA credit rating, a broad product line and distribution network, and its products are essential in saving lives and curing diseases, and a new CEO who is making the right moves. Bruce considers the proposed merger with Wyeth brighten the future of the company even further. With the merger, the company effectively accomplished smoothing its bumpy revenue growth and alleviating the concern of shrinking drug pipeline of new drugs.
For details on why Bruce Berkowitz has so much conviction on this one stock, please read this, this and this article.
Unfortunately, in short term, because of the proposed merger with Wyeth (WYE), Bruce Berkowitz finds him in the opposite side of the trading with other Investment Gurus such as John Paulson. As we reported in this story, because of the arbitrage gap between PFE and WYE, John Paulson has spent $1.3 billion on WYE to capture the arbitrage gap. In order for the arbitrage to work, John Paulson has to short equivalent number of PFE. That explains why the PFE stock continues to be held at the current depressed level.
No. 2: Sears Holdings Corp. ( SHLD), Weightings: 11.87% - 14,338,939 Shares
GuruFocus has its shares of coverage of this brain baby of Investment Guru Edward Lampert. It turns out, Bruce Berkowitz also own a good portion of this retail company after Edward Lampert.
Sears Holdings Corporation is the parent of retailing companies Kmart and Sears Roebuck and Co. Sears Holdings Corp. has a market cap of $6.89 billion; its shares were traded at around $56.76 with a P/E ratio of 21.4 and P/S ratio of 0.1. Sears Holdings Corp. had an annual average earning growth of 45% over the past 5 years.
Bruce Berkowitz started to buy the stock as early as 2005. His major purchase happened in the period from 3Q07 to 3Q08, when the stock price was much high. In the Bloomberg video you just watched, Bruce Berkowitz cited the amount of cash the company is generating and the solid balance sheet as the reasons he liked the stock. He discussed this stock in grand detail in multiple occasions, GuruFocus had gathered and presented his SHLD investment thesis in this article.
No. 3: Forest Laboratories Inc. ( FRX), Weightings: 7.98% - 20,067,400 Shares
This is another Pharmaceutical company that Bruce Berkowitz owns.
Forest Laboratories Inc. develops, manufactures and sells both branded and generic forms of ethical drug products which require a physician's prescription as well as non-prescription pharmaceutical products sold over-the-counter. Forest Laboratories Inc. has a market cap of $6.96 billion; its shares were traded at around $23.12 with a P/E ratio of 6.6 and P/S ratio of 1.8. Forest Laboratories Inc. had an annual average earning growth of 30.7% over the past 10 years. GuruFocus rated Forest Laboratories Inc. the business predictability rank of 2.5-star.
Apparently, Bruce Berkowitz considers the value of FRX out-weights the risk of the effect of a Democratic administration can have over health care industry. He bought 12 million share of FRX in 2Q08, then hiked his position to 20 million share in the second half of 2008. FRX has been trading at prices much lower than his initial purchase prices, and Bruce Berkowitz is standing by his positions. As of March 31, 2009, he held 20 million shares, almost unchanged from a quarter earlier.
No. 4: WellPoint Inc. ( WLP), Weightings: 6.92% - 10,061,624 Shares
Talking about heavy exposure to healthcare, we encounter WellPoint the health benefit management company.
WellPoint Inc. is the largest publicly traded commercial health benefits company in terms of membership in the United States. WellPoint Inc. has a market cap of $23.22 billion; its shares were traded at around $46.78 with a P/E ratio of 7.8 and P/S ratio of 0.4. WellPoint Inc. had an annual average earning growth of 20.8% over the past 5 years.
Bruce Berkowitz does not think the risk of government dramatically change the health care system is of anything particular concern, according to this interview with Heilbrunn Center for Graham & Dodd:
G&D: In your earlier comments, you referenced this idea of “killing the company”—figuring out what it would take to destroy or impair a company’s ability to generate cash flow. How do you go about killing a company you are considering investing in? I guess each case might be different, but maybe you could walk us through an example with the HMOs and how you thought about killing those businesses.
BB: To kill the HMOs, you just have to answer the following question:Who would do what they’re doing if they weren’t doing it?” Th e big issue with HMOs is a radical restructuring of the healthcare system and whether or not someone else can do what they are doing, or whether they can be forced to do it at much lower prices. By studying the industry and the participants, you can come to the conclusion that the only thing the government can do is cut a check. And every time they’ve tried to run a healthcare system by cutting checks, such as with Medicare, the costs just escalate the HMOs have become gatekeepers and they do it for reasonable prices. Th ere is no other organization or other industry that we believe is a competitive threat, and there are no other people that have the scale or skills by which to carry forth the future healthcare system, whether it is universal health or corporate healthcare policies. So when we are trying to kill an HMO, the first question that we address is the obvious issue of how they can be pushed aside, and our answer is that we can’t find any way to kill them from a competitive or regulatory threat. Once you get to that, then you can say that these companies have had really poor capital allocation policies in the past. Th ey have spent billions of dollars buying their stock back at two times or three times current prices. Th e only conclusion that we can come to there is that it wouldn’t be a mistake for them to do that today. Most likely they are all buying their stock back. So if the HMOs— United Health, WellPoint , and others—are not going to manage the healthcare system, then who is? And I can’t find an answer to that. I can’t find an alternative.
Bruce Berkowitz has held WLP since the first quarter of 2008 and he has kept his position steadily at around 11-12 million shares. As of 1Q09, he sold about 2 million share of WLP, perhaps to “sell what is cheap to buy what is cheaper”
No. 5: American Express Company ( AXP), Weightings: 5.88% - 23,813,050 Shares
Bruce Berkowitz playing with Financials? Stay away from financials has been a prudent decision for Bruce Berkowitz and the decision has enabled him to avoid many pitfalls that other many value investors found themselves falling into in 2008. But in 2009, Bruce Berkowitz made a decisive move into Financials with American Express.
American Express Company is a credit card company. American Express Company has a market cap of $28.04 billion; its shares were traded at around $24.3 with a P/E ratio of 13.2 and P/S ratio of 1. The dividend yield of American Express Company stocks is 2.9%. American Express Company had an annual average earning growth of 1.3% over the past 10 years.
Bruce Berkowitz started to own this stock as far back as in 1999, but his interest has been insignificant until in 4Q08 when everything financial found itself approaching the ground quickly. In 4Q08, Bruce Berkowitz scooped up 13.5 million shares of AXp and he continued to buy another 10.3 million shares in 1Q09, bringing his total holding to 23.8 million share. All the shares bough during the past half a year are profitable now, up substantially.
No. 6: Northrop Grumman Corp. ( NOC), Weightings: 5.78% - 7,319,676 Shares
The speculations that the current Democratic government may cut back on defense expenses do not deter Bruce Berkowitz from investing in the defense companies. He owns Northrop Grumman Corp. ( NOC), General Dynamics (GD) and Boeing (BA).
Northrop Grumman Corporation is a high technology company providing innovative solutions in systems integration, defense electronics, and information technology for its U.S. and international military, government, and commercial customers as a prime contractor, principal subcontractor, team member, or preferred supplier. Northrop Grumman Corp. has a market cap of $15.68 billion; its shares were traded at around $47.96 with a P/E ratio of 8.5 and P/S ratio of 0.5. The dividend yield of Northrop Grumman Corp. stocks is 3.4%. Northrop Grumman Corp. had an annual average earning growth of 1.3% over the past 10 years.
Bruce Berkowitz started to build a position in NOC in 3Q08 with 4.3 million shares. In 4Q08, he increased his stake to 9.0 million shares. He actually sold 1.6 million shares in the first quarter of 2009. His 1Q09 holding is 7.3 million shares. In the context of the statements he made in the Bloomberg video, one has to view the sale as “to sell something cheap and buy something else cheaper”.
1Q09 Top Purchases
Bruce Berkowitz’s top purchases last quarter were American Express Company ( AXP), The St. Joe Company ( JOE), Hertz Global Holdings Inc. ( HTZ), and Spirit AeroSystems Holdings Inc. (SPR, Financial).
No. 1: American Express Company ( AXP) - Total: 23,813,050 Shares
Bruce Berkowitz’s purchase in the first quarter in AXP makes AXP one of his top holdings. This is an example of if you like a stock, you buy a very small position in the stock just so you won’t forget about the company. You wait for the right time to come and buy a truck load of the stock so you make a kill. Bruce Berkowitz practice this, so does Warren Buffett. Warren Buffett was said to like certain @#$%& who was dating someone else, so he waited until they broke up to make his moves. The same spirit is at work here.
No. 2: The St. Joe Company ( JOE) - Total: 18,456,326 Shares
Bruce added about 7.2 million shares to his stake in The St. Joe Company, bringing his total shares to 18.4 million shares. This another typical double down play on his part.
St. Joe Company is one of the Southeast's largest real estate operating companies. The St. Joe Company has a market cap of $2.24 billion; its shares were traded at around $24.39 with and P/S ratio of 8.4. The St. Joe Company had an annual average earning growth of 5.4% over the past 10 years.
Bruce Berkowitz commented on the investment in St. Joe Company in the February 11, 2009 conference call:
Berkowitz: Other areas where the free cash flow is hard to see would be a company like St. Joe. We Just recently file again on St. Joe, and are probably their largest owner. And there’s a company that isn’t generating free cash, but wich has almost 600,000 acres of land in Florida selling, basically, for swamp land prices. But I think we do also have some insights or a type of informational arbitrage that the public or Mr. Market doesn’t have in all three. Time will tell, though. Whether or not we have the correct insights…
The informational arbitrage that Bruce Berkowitz talked about here is the airport that the US government is putting in the center of the land that St. Joe Company own. The airport is the latest major airport that US government ever built after Denver airport and is scheduled to open in 2010. To Bruce Berkowitz, the fund the government put in the airport, is as good as any free cash flow.
No. 3: Hertz Global Holdings Inc. ( HTZ) - Total: 42,738,138 Shares
Hertz Global Holdings is the world’s largest general use car rental company. It operates from approximately 8100 locations in 147 countries worldwide. Hertz is the number one airport car rental brand in the U.S. and at 69 major airports in Europe. Hertz Global Holdings Inc. has a market cap of $2.14 billion; its shares were traded at around $6.62 with a P/E ratio of 44.1 and P/S ratio of 0.2.
Once again Bruce Berkowitz is taking advantage of the low price in 1Q09 to accumulate shares in HTZ. He bought 12.3 million shares of HTZ in 3Q08 when the stock price averaged $7.57, 22 million shares in 4Q08 when stock price averaged $5.07, and 8.5 million more shares in 1Q09 when the stock price averaged $3.93. For an value investor, it is not about buying the stock and the stock price gyrating upwards toward the intrinsic value, it is about having faith in the intrinsic calculation and buying more shares when the stock goes down. At today’s price of $6.62 per share, Bruce Berkowitz’s investment is paying off handsomely.
No. 4: Spirit AeroSystems Holdings Inc. (SPR) - Total: 19,012,064 Shares
SPIRIT AEROSYSTEMS is the world's largest independent supplier of commercial airplane assemblies and components. In addition to its Kansas facility Spirit has operations in Tulsa and McAlester Okla. Prestwick Scotland and Samlesbury England. In the U.S. Spirit's core products include fuselages pylons nacelles and wing components. Additionally Spirit provides aftermarket customer support services including spare parts, maintenance/repair/overhaul, and fleet support services in North America and Europe. Spirit Europe produces wing components for a host of customers including Airbus. Spirit AeroSystems Holdings Inc. has a market cap of $1.89 billion; its shares were traded at around $13.52 with a P/E ratio of 7.7 and P/S ratio of 0.5.
Once again, double-down is at play here. Bruce Berkowitz started to buy into the stock (3 million shares) in 3Q08 when the stock price averaged $16. He bought more (12.6 million shares) in 4Q09 when the stock price averaged $10. and in 1Q09, he bought another 3.4 million shares when the stock price averaged $10. Today at stock price of $13.52, he stands for much gain.
