Contrarian Value Investing » WLP

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

Warren Buffett Stocks Trading At 52 Week Lows Part 2

alexg — Thu, 03 Jul 2008 23:15:08 +0000

This is the second part on what stocks I am looking at. Part 1 dealt with stocks in the DJIA trading at or near 52 week lows. Next, I will look at stocks Warren Buffett or Berkshire Hathaway has bought according to Gurufocus.com.

Although studies have shown that following Buffett into stocks has been a good idea, I highly do not recommend following ANY guru into a stock. For example, think about the number of people who blindly followed Mohnish Pabrai or Martin Whitman in the last year. Plus, digging into a company’s 10-K will help anyone looking into a company get a better picture about the company and where its heading. Personally, I have followed the Oracle into a couple of holdings only after checking out the companies story. Finally, when it comes to pharma’s, Warren Buffett has stated he recommends buying a basket of them.

Kraft (KFT)- This one seems to be the one he is buying the most

Wells Fargo (WFC) – High Quality Bank

US Bank (USB) – Another high quality bank with great management

WellPoint (WLP)- Along with UNH , huge cash flow producers

UnitedHealth Group (UNH) – ^

Ingersoll-Rand (IR)- Also appears on Magic Formula screen

CarMax (KMX)- Haven’t looked into story

Glaxosmithkline (GSK)- Buy as basket

WABCO Holdings (WBC)- Have no idea

Bank of America (BAC)-

Sanofi-Aventis (SNY)- basket

US Gypsum (USG)- Moat will expand as competetors struggle with downturn

Lowes (LOW)- Will recover with economy

Also, there are several companies that Gurufocus does not list. I am guessing this is due to Warren Buffett purchasing the securities before GF was established. From the top of my head….

Moody’s (MCO)

American Express (AXP)

Coca-Cola (KO)

Proctor and Gamble (PG)

Disclaimer: I own PG and USB, I sold out of my holding in UNH a week ago.

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.