Contrarian Value Investing » Bruce Berkowitz

Two Great Bruce Berkowitz Interviews

alexg — Sun, 12 Apr 2009 06:39:00 +0000

Its no secret I am a Bruce Berkowitz fan. I believe his investment thesis for his stock picks are simple and usually make sense and we often find ourselves going into similar industries like Defense. Plus, hes the main reason I have started using free cash flow yield as a valuation metric. Anyway, below are a couple of great pieces concerning some of his recent picks in which Bruce was interview on Outstanding Investor Digest and a conference call with Pfeizer CEO Jeff Kindler.

Bruce Berkowitz Outstanding Investor Digest Interview

I enjoy OID but for some reason they haven’t produced interviews like before in terms of quantity. But, ill take quality any day.Anyway, this OID really reveals a lot of how Bruce approaches security analysis. As a matter of fact, if I had to compare myself to any investor over the past year, it would be Bruce. Too bad, I didn’t avoid AIG like he did. One final note concerning PFE, while I think its a great business and undervalued, I don’t understand PFE being the biggest position in Bruce’s portfolio which according to Google finance represents 18% of the portfolio. I guess this goes back to the old Peter Lynch classification of stocks in which he put large amounts of money on smaller companies, rather than large caps due to the smaller companies ability to grow at an above average rate. Quite frankly, its much easier for ABC with a market cap of 1 billion to triple than someone like Pfeizer to triple.

Conference Call

Conference Call Transcript

Must See: Bruce Berkowitz

alexg — Sat, 29 Nov 2008 16:33:53 +0000

Every once in a while a value investor will go out of his way to let the public know what goes on behind their mind. Bruce Berkowitz recently did that by holding a public conference call. Thanks to Gurufocus for posting the video up and bringing it to everyone’s attention. Its over an hour long so I suggest you listen to it when you have some free time. Enjoy

3 Bruce Berkowitz Stocks For Today

alexg — Sun, 09 Nov 2008 22:02:52 +0000

Everyone has their favorite “gurus”. The obvious picks being Warren Buffett, Charles Munger and Eddie Lampert. But outside those names there are a few interesting individuals whose picks are tougher to decipher. In the small cap arena we have Paul Sonkin who is profiled in Bruce Greenwald’s book and Aaron Edelheit. Moving on to a larger cap arena we find one of my favorite gurus, Bruce Berkowitz who I have written about before. I find most of his investment ideas pretty easy to understand and can see why he invests in certain companies. Given the decline in major stock averages I am looking forward to the companies “gurus” are investing in below are 3 stocks Bruce Berkowitz is investing according to SEC filings and what may be the reasoning behind them.

IDT Corporation (IDT)- According to this filing, Fairholme has a 6.4% stake in this small technology stock. I have no idea what the company does, but I do know its a 65 million market cap company with 169 million cash on hand. Income and cash flow wise not the best company to invest in, but the balance sheet looks solid.

Mohawk Industries (MHK)- According to this filing, Fairholme has a 3.7% stake in Mohawk Industries. I believe this is down from previous reports. Anyway, Mohawk is down significantly as its in the middle of the real estate bust. Under normal conditions the company has significant cash flow. Mohawk has a solid balance sheet which should allow it to weather the storm.

Winthrop Realty Trust (FUR)- According to this filing, Fairholme has a 11% stake in Winthrop Trust. My bet would be this is a real estate play. Winthrop is a 216 million dollar company with 141 million dollars in cash. If I wanted to investigate the company further I would definitely consider looking at its long term investments and land values as they are reported to be about 250 million each on the balance sheet.

Disclosure: None

Bye Bye Mr. Buffett

alexg — Sat, 23 Aug 2008 19:36:16 +0000

I bought Burlington Northern Santa Fe (BNI) when Warren Buffett was buying its stock hands over fist in the low 80′s and high 70′s. The stock soon railed its way to $110 as the price of crude climbed.The high price of crude made it cheaper for companies to send long distance shipments via rail. The ride was fun but unfortunately, I have to let Mr. Buffett’s stock picks go as I try to become 100% invested with magic formula stocks. Under my current stock picking system (contrarian investing + magic formula investing), BNI would have never been purchased as its ROIC (12%) is too low for my liking. I already know what is going to happen next, I swap stocks, while my current stock lags the market, BNI goes up to $175. Although this will hurt in the short term, I am conferable with my stock picks.

No Cash = Wait For Better Opportunities

When I decided to go with a 100% magic formula portfolio I made a commitment to find solid undervalued business with the idea to be 100% invested near the market bottom. So far the decision has been correct (knock on wood!). I based that decision on the idea that later on I would have to sell great stocks selling at average prices (BNI, PG) for great stocks selling at great prices (BA , and the stock to be named below).

Top 25

When I went on a buying spree, most of the stocks were ranked in either the top 50 or top 100 stocks with a minimum market cap of 2000 million. This was fine as I wanted to be 100% invested. Now that I am 100% invested, the only stocks I will consider purchasing are stocks ranked in the top 25 for companies with a minimum market cap of 50 or 2000 million (they usually overlap in between).

PG last man (woman?) standing

I purchased PG on June 30 as the stock price hit $60. I thought then it was TOO cheap and would provide some safety as consumers will not stop buying detergent. I plan to sell PG if another opportunity comes around or the stock hits $80 (my target price).

Buying Forest Laboratories (FRX)

According to Yahoo Finance, Forest Laboratories, Inc., together with its subsidiaries, develops, manufactures, and sells branded and generic forms of ethical drug products, and non-prescription pharmaceutical products. FRX currently appears on the magic formula screen for the top 25 companies with a minimum market cap of 2000 million. According to magicformulainvesting.com, FRX currently sports a 12% pre tax earnings yield and a ROIC greater than 100%. Calculating the numbers by hand, I get an earnings yield of 12.35 % and ROIC of 45%

Bruce Berkowitz Owns It

I had no idea. While checking out its P/E I found this story link stating Bruce Berkowitz owns FRX. This by no means influenced my decision to purchase FRX but its great to know great minds think alike

Disclaimer: I own PG and BA, have limit order for FRX and have sell order on BNI

View the FRX WikiChart on Wikinvest

Fairholme Fund 2008 Semi-Annual Report Released

alexg — Thu, 31 Jul 2008 23:54:50 +0000

The 2008 semi-annual report has been released by Fairholme. There is no better way to describe the champion fund than by their tagline “ignore the crowd”. As Wall St. drove oil stocks to sky high prices, Fairholme decides to invest in beaten up stocks in beaten up sectors such as pharma and housing.

Surprisingly Fairholme halved their position in Berkshire Hathaway citing:

We also halved our position in Berkshire Hathaway in the November-May period.
While we have the greatest respect for Chairman Warren Buffett, we made this
move because we cannot see how the company can replicate its past stellar performance
given its current size and the age of its key personnel. Berkshire should
still make good money for shareholders, but not enough to justify so large an investment
at prices sold

Obviously, Bruce Berkowitz feels Berkshire does not represent the opportunity a WellPoint (WLP) does. For WellPoint to double, its price would have to reach $90-100, something that can certainly be attained since in the past 52 weeks WellPoint has traded as high as $90. Now, for Berkshire to double it would have to have a stock price of $225,000.00. Possible? Yes, but it will take time considering Berkshire’s current market cap of 177 billion (GE has a market cap of 280 billion). For the 6 months ended 6/30/2008, Fairholme has outperformed the market by 6%, due to avoiding financials.Management had the following to say:

We have avoided most banks, brokerage firms, and other highly leveraged financial
companies given our inability to understand what they own and who they owe.
Furthermore, many of these companies are raising capital on terms that are highly
dilutive to existing shareholders.

It will be interesting if Burkowitz does indeed jump into financials. If memory serves me correct, Berkowitz mentioned in an interview he established a position in American Express (AXP), but I am not 100% sure. Finally, Berkowtiz ended the letter with something to say about current headlines:

We understand that the recent volatility in financial markets and in the Fund’s daily
price can be jolting for shareholders. However, we do not mind such vicissitudes,
but do mind permanent loss. Today, shareholders are facing scary headlines while
we believe the Fund is buying great businesses at better than reasonable prices, a
practice that in the past has produced an outstanding record. Since the Fund’s
inception in late December, 1999, it has gained about 240% while the S&P 500 is
essentially flat. We are proud of this performance, optimistic about our future, and
continue to invest in the professional staff and infrastructure needed to serve our
valued shareholders.

What else can I say? Berkowitz as Contrarian-Value Investor written all over him

Bruce Berkowitz On Wealthtrack is Weeks Top Value Investing Story

alexg — Sat, 14 Jun 2008 17:09:04 +0000

Instead of posting the week’s top value investing news, this week I plan to switch it up a bit. I will be posting my favorite post of the week. This week, my favorite news had to be Bruce Berkowitz on Consuelo Mack’s Wealthtrack.
Berkowitz is trimming his holdings in energy and is loading up on health care companies like Well Care Health (WCG). This came as no surprise as I have stated crude has had a nice run up, while health care stocks have been beaten down to levels not seen in quite a while. The two big stocks in the health care group United Health (UNH) and Wellpoint (WLP), seem to be getting the most attention from Gurus.Below is a small list of Gurus who have recently added to WLP and UNH. Data taken from Gurufocus.com

* Warren Buffett added 400,000 shares to UNH or an increase of 6%
* Bruce Berkowitz has 6% of portfolio in WLP or 11.015 million shares
* Seth Klarman has 11.6% of portfolio in WLP or 4.45 million shares

In addition, Morningstar.com recently mentioned they have estimated UnitedHealth’s fair value to be a “conservative” $60, providing a 50% margin of safety at current levels. I am pretty confident the margin of safety is the same for Wellpoint as both stocks have been equally beaten down with several gurus establishing big positions.

Gurus Loadinig Up On Health Care Stocks

alexg — Thu, 15 May 2008 17:27:48 +0000

I guess I was not the only one looking at them.

After posting my thoughts on United Healthcare(UNH) and Wellpoint (WLP), I headed over at Gurufocus.com to check out their forum/site and found several gurus loading up on WLP and UNH. First, as posted in the previous post, noted value investor Seth Klarman invested 11% of his portfolio in WellPoint. Now, it looks as if Gurufocus.com is being updated as first quarter holdings come out. Next, Bruce Burkowitz invested 6% of his portfolio also in WellPoint (WLP). Finally,Glenn Greenberg, who runs a very concentrated portfolio invested little less than 3% in UNH. Not bad,again Gurufocus is still updating portfolios and it will be interesting what other gurus jump on board. I guess its trues, great minds think alike. =)
Thanks to Gurufocus.com for the updates

Disclaimer: I own UNH