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Dogs of Bruce Berkowitz: Penn West Energy Trust, Calumet Specialty Products Partners, Winthrop Realty Trust, BristolMyers Squibb Company, and Pfizer Inc.

Dogs of Bruce Berkowitz

July 01, 2009 | About:
(GuruFocus, July 1, 2008) Investment Guru, Bruce Berkowitz follows the cash when coming to investing, the free kind of cash flow (FCF). He would make a few adjustment to the accounting, as he des cribed how he uses FCF analysis in the Introduction to Part IV Go With The Flow[i] in the latest [i]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:

1. Companies often misstate the costs of employees’ pension and postretirement medical benefits

2. Companies often lowball what they pay management

3. Long-term supply contracts may be a source for accounting-derived profits that aren’t real

4. On the positive side, there are company book expenses that are really investment for long-term growth

We recommend our users starts with companies in lis of the GuruFocus Highly Predictable Companies. For if the company is not predictable, how can one be sure the future cash flow will be predictable? If one is not sure about the future cash flow projection, what confidence do you have on your Discounted Cash Flow model?

If you don’t want to try yourself, you may want to take a look at the stocks owned by Bruce Berkowitz in his portfolio.

Bruce Berkowitz in 2Q09

Fairholme Fund had an outstanding 2Q09, NAV grew from $19.12 on March 31 to $25.38 o June 30, 2009, a growth of 32.74%. The equity portfolio we track at GuruFocus shows a 33.4% gain during the period, close enough, considering the trading activities and cash positions that we do not keep track of during the quarter.

But if you want to follow Bruce Berkowitz, you probably do not want to chase the high fliers in his portfolio. Rather, you want to start with the underdogs in the portfolio.

That brings us to the theme of Dogs of Bruce Berkowitz.

High Yield Bruce Berkowitz Stocks

Borrowing a term from a simple investment methodology “the Dogs of The Dow”, we are sifting the portfolios of buy-and-hold Investment Gurus to identify the high yield stocks, we call those the “Dogs”. As of now, the dogs of Bruce Berkowitz are: Penn West Energy Trust Units (PWE), Calumet Specialty Products Partners L.P. (NASDAQ:CLMT), Winthrop Realty Trust (NYSE:FUR), BristolMyers Squibb Company (NYSE:BMY), and Pfizer Inc (NYSE:PFE).

1. Penn West Energy Trust Units (PWE) -- Yield 14.2%

Penn West Energy Trust Trust is a senior oil and natural gas energy trust based in Calgary Alberta. Penn West Energy Trust Trust Units has a market cap of $5.29 billion; its shares were traded at around $12.73 with a P/E ratio of 9.4 and P/S ratio of 1.3. The dividend yield of Penn West Energy Trust Trust Units stocks is 14.2%.

Berkowitz had at peak times 12.4 million shares of PWE back in 1Q07, now he has a insignificant 15,129 shares. He sold most of his shares during period of 2Q07 to 1Q08.

But the fact he kept some share for the past two quarters (4Q08 and 1Q09) shows he still kept an eye on it, for wherever your treasure is, there your heart will be. After all, he only keeps 33 stocks on his book.

There are some concerns among the investors on the sustainability of the dividends from the Canadian Energy Trusts, as expressed by GuruFocus columnist [url=http://www.gurufocus.com/news.php?id=53882 ] Dividend Growth Investor[/url]. The answer will bode down to what is the future oil price? Company specifics also apply here as it is important to know how long the company’s reserve will last. We leave it to the readers to figure this out.

2. Calumet Specialty Products Partners L.P. (NASDAQ:CLMT) -- Yield 11.6%

Calumet Specialty Products Partners L.P. is a producer of high-quality specialty hydrocarbon products in North America. Calumet processes crude oil into customized lubricating oils solvents and waxes used in consumer industrial and automotive products. Calumet Specialty Products Partners L.P. has a market cap of $499.6 million; its shares were traded at around $15.5 with a P/E ratio of 6.4 and P/S ratio of 0.2. The dividend yield of Calumet Specialty Products Partners L.P. stocks is 11.6%.

Berkowitz held the stock for a long time. At peak time of 3Q06, he had 812, 333 shares. He has sold down to 29,200 shares as of 1Q09.

It is encouraging to see a director of the company, George C Iii Morris kept on buying the company’s stock since May 21, 2009. He has bought a total of nearly 20,000 shares in five different transactions.

3. Winthrop Realty Trust (NYSE:FUR) -- Yield 11.2%

Winthrop Realty Trust is a Boston-based real estate investment trust. Its principal business activity is investing in and making loans secured by real estate assets. Winthrop Realty Trust has a market cap of $141.3 million; its shares were traded at around $8.93 with and P/S ratio of 3.1. The dividend yield of Winthrop Realty Trust stocks is 11.2%.

This is a relatively new holding for Berkowitz. In 4Q08, he bought 1.254 million shares, and sold a fraction in 1Q09, holding onto 1.209 million shares.

Commercial Real Estate has a pretty bad reputation lately as the economic concerns mounting. The envisioned train reaction is that consumers will from now on become frugal and reset their shopping habits, making the retailers go belly up and malls empty, and that may cause the mall owners go belly up, as we witnesses in the case for General Growth Properoties.

Perhaps Winthrop is an exception? Users are welcome to comment on this.

4. BristolMyers Squibb Company (NYSE:BMY) -- Yield 6.1%

Bristol-Myers Squibb Company is a drug company. BristolMyers Squibb Company has a market cap of $40.23 billion; its shares were traded at around $20.31 with a P/E ratio of 11.1 and P/S ratio of 2. The dividend yield of BristolMyers Squibb Company stocks is 6.1%.

Berkowitz kept a small position of 3,440 shares in his portfolio between 1Q1999 to 1Q2000, when the price for the drug company was in 60-70 range. He bought 8.7 million shares in 1Q08 when the stock price dropped dramatically, only to see that he sold all but 56,500 shares in the following quarter. As of 1Q09, he held 39,700. Given Berkowitz’s commitment in Pfizer and health care sector in general, it is hard to say he does not have interest in the company.

5. Pfizer Inc (NYSE:PFE) -- Yield 4.3%

Pfizer Inc is a research-based global pharmaceutical company. Pfizer Pfizer Inc has a market cap of $101.22 billion; its shares were traded at around $15 with a P/E ratio of 6.4 and P/S ratio of 2.1. The dividend yield of Pfizer Inc stocks is 4.3%. 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.

Berkowitz maintain a tiny position of a few thousand in PFE since 2Q06. In 2Q08, he suddenly increased his holding to 73.7 million shares and as of 1Q09, he held 88 million share. This is his single largest position, accounting for 21.76% of the $5.52 billion equity portfolio of Fairholme Capital Managment.

PFE is buying Wyeth. Investment Gurus such as John Paulson are arbitraging the deal and selling the stock short. We probably are not going to see the stock make any major movement until after the close of the acquisition in 3Q09.


Berkowitz’s dogs reflect the current sentiment of the market, while the overall market had a good run since its March 2009 low. Oil, Real Estate, and Healthcare are still out of favor, judged from their dividend yield ratios.

Users are cautioned to do your research before investing in any of these names. If you are looking for more detailed research from GuruFocus, you may want to check out the two newsletters that we are publishing:
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Rating: 3.1/5 (28 votes)


Heisenman premium member - 8 years ago
Berkowitz had previously served on the board of Winthrop Realty but after moving to S. Florida having to commute to & from Boston for (FUR) he resigned from the board. Given his position as a former board member he should know the company "well".
Guruek - 8 years ago    Report SPAM
Heisenman, Thanks!
Buffetteer17 premium member - 8 years ago
Unlike the market, and like Berkowitz, I thought that Pfizer buying Wyeth was a great move. After it, I bought a lot of PFE. PFE is currently 4.4% of my portfolio, but its influence is much larger, about 7.5%, because I own a lot of LEAP calls.

Hopefully PFE will go below $14, and I can buy some more. My estimated intrinsic value is $28.

Depending on the ratios, it might be smart to buy WYE and short PFE, even if you like PFE. I'll have to run the numbers. On a similar note I'm long COP and short XOM, even though I think XOM is 20% undervalued.
Supro1 - 8 years ago    Report SPAM
Excellent article on Berkowitz holdings.
Value_barbarossa - 8 years ago    Report SPAM

If you like PFE why don't you just start buying WYE without shorting the PFE now? You'll get back most of your cash and then pick up some PFE at a discount to the current price.

If I felt as bullish as you about PFE perhaps I would buy WYE uncovered right now. Unfortunately I think PFE can make a ton of cash, but I'm not confident at all in its ability to wisely reinvest its cash. (Look at the billions spent on the "pipeline" over the years)

Everyone's talking about Lipitor patent expiration coming up, and while I realize this will not be the end of the company I do think there are better deals out there in terms of "normalized free cash flow".

Buffetteer17 premium member - 8 years ago
There's not enough margin for me to justify buying WYE to acquire PFE.

PFE price $14.76

WYE price $45.55

WYE value in acquistion $33 cash + 0.985*PFE share = $47.54

difference about 4%

PFE in their last 10K said closure of the deal is expected end of 3rd quarter or during 4th quarter 2009. There is some risk it will take longer.

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