Fund managed by Bruce Berkowitz reveals 3rd-quarter portfolio
Summary
- The fund increased its position in Enterprise Products Partners.
- It sold out of Commercial Metals
CMC
and Berkshire Hathaway
BRK.B
Last week, the Fairholme Focused Income Fund (Trades, Portfolio) released its equity portfolio for the third quarter.
The fund is part of Bruce Berkowitz (Trades, Portfolio)’s Miami-based Fairholme Capital Management. As he believes more diversified portfolios lead to more average returns, it invests in a handful of undervalued stocks to achieve its objectives of current income, cash distribution and capital preservation.
According to NPORT-P filings for the three months ended Aug. 31, Berkowitz’s fund only made a handful of trades. It added to its stake in Enterprise Products Partners LP
EPD
(EPD, Financial) and exited its holdings of Commercial Metals Co. (CMC, Financial) and Berkshire Hathaway Inc.’s Class B stock (BRK.B, Financial).
Investors should be aware that, just like 13F filings, 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 partial filings can provide valuable information.
Enterprise Products Partners
The fund upped the Enterprise Products Partners (EPD, Financial) stake by 2.27%, buying 40,000 shares. The transaction had an impact of 1.93% on the equity portfolio. The stock traded for an average price of $26.45 per share during the quarter.
Enterprise Product Partners is the Focused Income Fund’s largest holding, accounting for 86.95% of the equity portfolio. It now holds 1.80 million shares total. GuruFocus estimates the fund has gained 7.04% on the investment so far.
The Houston-based midstream oil and gas company has a $56.83 billion market cap; its shares were trading around $26.17 on Thursday with a price-earnings ratio of 10.60, a price-book ratio of 2.11 and a price-sales ratio of 1.10.
The GF Value Line
VALU
suggests the stock is modestly undervalued currently based on historical ratios, past financial performance and analysts’ future earnings projections.
At 88 out of 100, the GF Score indicates the company has good outperformance potential. While it received high ratings for profitability, growth and momentum, the financial strength and value ranks are more moderate.
The company also has a predictability rank of one out of five stars. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Enterprise Product Partners, Berkowitz has the largest stake with 0.20% of its outstanding shares. Beyond Berkowitz’s funds, First Eagle Investment (Trades, Portfolio), Leon Cooperman (Trades, Portfolio), David Tepper (Trades, Portfolio), Mark Hillman (Trades, Portfolio), George Soros (Trades, Portfolio), Tweedy Browne (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and several other gurus also own the stock.
Commercial Metals
The Focused Income Fund divested of its 445,200-share position in Commercial Metals (CMC, Financial). The transaction impacted the equity portfolio by -23.73%. During the quarter, shares traded for an average price of $53.14 each.
Previously the fund’s second-largest holding, GuruFocus says it gained an estimated 42.72% on the investment over its lifetime.
The steel and metal manufacturer headquartered in Irving, Texas has a market cap of $5.24 billion; its shares traded around $44.78 on Thursday with a price-earnings ratio of 6.18, a price-book ratio of 1.27 and a price-sales ratio of 0.59.
According to the GF Value Line, the stock is fairly valued currently.
The GF Score of 91 also implies the company has high outperformance potential on the back of strong ratings for four of the criteria and a more moderate value rank.
Commercial Metals also has a one-star predictability rank.
With 0.17% of its outstanding shares, Chuck Royce (Trades, Portfolio) is the company’s largest guru shareholder. Other top guru investors include Berkowitz, Louis Moore Bacon (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), First Eagle, Joel Greenblatt (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Scott Black (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and Steven Cohen (Trades, Portfolio).
Berkshire Hathaway
The fund exited its 32,050-share investment in Berkshire Hathaway’s (BRK.B, Financial) Class B stock, impacting the equity portfolio by -12.83%. The stock traded for an average per-share price of $345.64 during the quarter.
GuruFocus data shows it gained around 9.39% on the short-lived investment.
The Omaha, Nebraska-based insurance conglomerate, which is run by Warren Buffett (Trades, Portfolio), has a $760.85 billion market cap; its class B shares were trading around $348.27 on Thursday with a price-earnings ratio of 8.76, a price-book ratio of 1.42 and a price-sales ratio of 1.92.
Based on the GF Value Line, the stock appears to be fairly valued currently.
The GF Score of 73 means the company is likely to have average performance going forward, driven by a high momentum rank, middling marks for profitability, growth and financial strength and a low value rating.
Berkshire also has a one-star predictability rank.
Bill Gates (Trades, Portfolio)’ foundation trust has the largest stake in the Class B stock with 1.16% of its outstanding shares. Tom Russo (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Chris Davis (Trades, Portfolio) also have significant holdings.
Portfolio composition and performance
Berkowitz’s fund did not make any other trades during the quarter.
The energy sector has the largest representation in the Focused Income Fund’s $55 million equity portfolio, which is composed of 4 stocks, at 37.70%.
The other three positions are WR Berkley Corp. (WRB, Financial), Federal Home Loan Mortgage Corp. (FMCC, Financial) and Freehold Royalties Ltd. (TSX:FRU, Financial).
In his annual letter to shareholders, Berkowitz said the fund returned 6% in 2022, significantly outperforming the S&P 500’s return of -18.11%.
Disclosures
I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.
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