Berkowitz, Rodriguez and Pabrai: Examining Q3 Filings

by: Davy Bui November 19, 2008 | about stocks: BA / BAM / BRK.A / FRX / HNR / LUK / NOC / PFE / SHLD / SIG / TX / UNH / USG / WCG    
Davy Bui

Davy Bui

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Fairholme Capital, led by Bruce Berkowitz, runs a pretty focused portfolio and I found their most recent filing very interesting:

  • Berkowitz’s two largest new positions were big stakes in Boeing (BA) and Northrop Grumman (NOC), the win-win US tanker contract trade, if you will.  I have both on my watchlist and keep in mind that Berkowitz bought in around $60 on the two stocks; both are trading around $40 now and near 4% yield.  I feel like I need to do more research to get the defense industry into my circle of competence but if I thought there was value in those two stocks before, Berkowitz’s bet piques my interest even more.
  • Berkowitz can’t be accused of lacking conviction.  He added heavily to his healthcare positions, increasing his Pfizer (PFE) and UnitedHealth Group (UNH) by over 20% and Forest Labs (FRX) by nearly 50%.  It looks like he’s reversed his selling on Canadian Natural Resources (CNQ), adding back 46% of his position as the stock has dropped.  Berkowitz still believed in Eddie Lampert at Sears (SHLD), at least as of Q3 (remember that SHLD has fallen from $90 to under $40 now). And perhaps most interestingly, he continued the accumulation of Leucadia National (LUK), adding 36% more shares after adding over 10% last quarter.   At the time, LUK was trading in the mid $40 range but now trades under $18.  Might be time to dig into LUK, which is sometimes lumped in with Brookfield Asset Management (BAM) since both have reputations as “mini-Berkshires.”
  • Berkowitz didn’t completely divest any substantial positions.  USG was his biggest sold-off position but only at $200M, compared to $1B+ positions in SHLD and PFE.  He also sold half his BRK.A position though probably more to raise cash than any judgment on the stock.

Bob Rodriguez had been warning of funkiness in the credit markets for some time but it didn’t spare his FPA Capital fund from the slumping market.  His filing this quarter suggests FPA had a low-key quarter:

  • No sizable moves one way or the other.  Other than his $122M stake in Signet Jewelers (SIG) which is down over 50% since the period of the filing, there were no seismic shifts in the portfolio.

Mohnish Pabrai has had a hell of a year, in the “may you live in interesting times” kind of way.  His filing suggests that the pain just won’t stop:

  • No new positions opened and other than adding 50% to his Wellcare position (WCG), no real money being put to work in Q3 by Pabrai.  Don’t want to get too gossip-y (cue Missy Elliot) but were investors pulling money out in Q3?
  • If nervous investors weren’t pulling money out at the end of Q3, what are they thinking now?  Since then, some of Pabrai’s largest positions have just been slaughtered: HNR (-33%), SHLD (-64%), WCG (-74%), TX (-63%).  I know it’s been a bad year all around for most everyone but ouch.

Filings:

Disclosure: Author holds a long position in BAM, no position in the rest.

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This article has 2 comments:

  •  
    Nov 19 11:01 AM
    LUK has a big copper ore mine due to come on stream in '09 and also a large interest in an iron ore mine in Australia.With copper and iron ore prices plummeting, that could be a big drag on their earnings.Also look at their recent investments in Americredit(ACF) and Jefferies(JEF), both are underwater. Their portfolio isn't looking too hot right now. I also have to wonder about cash flow from their wholly owned subsidiaries like the lumber mill and winery. You have to start thinking if they can service their $2billion in debt. Boy just penning these words makes me want to short the stock, I think I will.
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  •  
    Dec 04 09:55 PM
    LUK does have a lot of investments that once looked like stellar performers but now look like dogs, i.e. copper mine, iron ore mine
    In fact none of their businesses look very recession proof. I guess the plastics business will do better with low oil (if they still have someone to sell their product to).
    However they are smart guys and raised capital early so have $3 billion or so on hand.
    They will probably do well with that capital but next qtr results will be horrible and they will probably have to mark-to-market their fortesque shares. Which i believe they paid A$7.50 for, after touching $A60 they have crashed to A$2.27. Goodbye billion dollar profit!
    LUK shares have been over-valued for the last 8 years, now back to more historical prices of well below book value. Apart from 1992 and 1999-2007 period they always traded below book value.
    Worth buying at $17? not sure, certainly better value but they could go lower.
    Very lumpy earning make this a long termer
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