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At the end of last week, the
Fairholme Fund (Trades, Portfolio) released its portfolio for the third quarter, which ended on August 31.
The fund is part of
Bruce berkowitz (Trades, Portfolio) Fairholme Capital Management of Miami. As he believes that more diversified portfolios lead to more average returns, the guru invests in a handful of undervalued stocks whose underlying companies have good management teams and steady cash flow generation.
Having not been invested in more than 10 holdings since the third quarter of 2018, the fund has embarked on a wave of purchases. He established eight new positions during the quarter, boosted Imperial Metals Corp. (TSX: III, Financial) by 10% and reduced its stake in Fannie Mae (FNMAS.PFD, Financial) and Federal Home Loan Mortgage Corp. (FMCKJ.PFD, Financial) preferred shares. Among the additions to the portfolio were Enterprise Product Partners LP (DEP, Financial), Commercial Metals Co. (CMC, financial), Intel Corp. (INTC, Financial), Energy Transfer LP (HEY, Financial) and Kinder Morgan Inc. (KMI, Financial).
Enterprise Product Partners
The fund invested in 1.11 million shares of Enterprise Products Partners (DEP, Financial), allocating 2.27% of the equity portfolio to the participation. The stock traded at an average price of $ 23.53 per share during the quarter.
Enterprise Product Partners is now Fairholme’s second holding company.
The Houston-based midsize oil and gas company has a market cap of $ 49.78 billion; its shares were trading at around $ 22.78 on Monday with a price-to-earnings ratio of 13.08, a price-to-book ratio of 2.01 and a price-to-sell ratio of 1.53.
The GF value line suggests that the stock is currently slightly undervalued based on its historical ratios, past performance and future earnings projections.
The financial strength of Enterprise Products Partners has been rated 4 out of 10 by GuruFocus. Due to the issuance of approximately $ 2.9 billion in new long-term debt over the past three years, interest coverage is low. The low Altman Z-Score of 1.53 also warns that the company could face bankruptcy if it does not improve its liquidity. However, the company creates value as it grows, since the return on invested capital overshadows the weighted average cost of capital.
The company’s profitability fared better, scoring a 7 out of 10 thanks to an expanding operating margin, strong returns on equity and capital that outperform more than half of its competitors and a Moderate Piotroski F-Score of 6, which indicates trading conditions are stable. Due to the decline in revenue per share over the past three years, the predictability ranking of one in five stars is under scrutiny. According to GuruFocus, companies with this rank are reporting an average of 1.1% per year over a 10-year period.
Among the gurus invested in Enterprise Product Partners,
First Eagle investment (Trades, Portfolio) holds the largest stake with 0.13% of its outstanding shares.
David tepper (professions, portfolio),
Leon Cooperman (Trades, Portfolio), Pioneer Investments,
Mark Hillman (trades, portfolio), the
Fairholme Focused Income Fund (professions, portfolio),
Georges soros (professions, portfolio),
Tweedy Browne (trades, portfolio) and
Murray Stahl (Trades, Portfolio) also hold the share.
Commercial metals
Fairholme acquired 441,700 shares of Commercial Metals (CMC, Financial), devoting 1.32% of the equity portfolio to the holding company. The shares traded at an average price of $ 32.05 each during the quarter.
The title is now the fund’s fourth position.
The steel and metal maker, headquartered in Irving, Texas, has a market cap of $ 3.87 billion; its shares were trading at around $ 32.19 on Monday with a price-to-earnings ratio of 9.46, a price-to-book ratio of 1.69 and a price-to-sell ratio of 0.57.
According to the GF Value Line, the stock is currently significantly overvalued.
GuruFocus rated Commercial Metals’ financial strength at 6 out of 10 thanks to adequate interest coverage and a high Altman Z-Score of 3.97. ROIC also eclipses WACC, indicating that value creation is underway.
The company’s profitability was rated 7 out of 10, thanks to expanding operating margin, strong returns exceeding the majority of its industry peers and a moderate Piotroski F-Score of 5. Commercial Metals has also a one-star predictability.
With 0.63% of its shares outstanding,
Chuck royce (Trades, Portfolio) is the company’s largest shareholder guru. Other gurus invested in trading metals are
Richard Snow (Trades, Portfolio), Berkowitz, the Focused Income Fund, Hotchkis & Wiley,
Ray dalio (professions, portfolio),
Paul Tudor Jones (professions, portfolio),
Steven cohen (professions, portfolio),
Joel greenblatt (Shops, Wallet) and First Eagle.
Intelligence
The fund took 125,500 shares in Intel (INTC, Financial), which gives it 0.62% space in the stock portfolio. During the quarter, the stock traded at an average price per share of $ 55.21.
The title is Fairholme’s seventh largest holding.
The Santa Clara, Calif., Based company, which manufactures semiconductor chips, has a market cap of $ 200.89 billion; its shares were trading at around $ 49.35 on Monday with a price-to-earnings ratio of 9.58, a price-to-book ratio of 2.22 and a price-to-sell ratio of 2.58.
Based on the GF value line, the stock currently appears to be slightly undervalued.
Intel’s financial strength was rated 6 out of 10 by GuruFocus as it is supported by a comfortable level of interest coverage as well as a high Altman Z-Score of 3.24. ROIC also exceeds WACC, so value is created.
The company’s profitability fared better, scoring an 8 out of 10 due to expanding operating margin, strong returns that outperform the majority of competitors and a moderate Piotroski F-Score of 6 Despite recording steady growth in profits and revenues over the past several months, Intel’s 3.5-star predictability rating is under scrutiny. GuruFocus claims that companies with this rank are reporting an average of 9.3% per year.
PRIMECAP management (Trades, Portfolio) is Intel’s largest guru shareholder with a 0.86% stake.
Ken fisher (professions, portfolio),
Seth klarman (professions, portfolio),
Daniel loeb (professions, portfolio),
Chris Davis (Trades, Portfolio), Pioneer Investments,
Al gore (trades, portfolio), the
Parnassus Endeavor Fund (trades, portfolio) and
Michel Price (Trades, Portfolio) also have significant stakes in Intel.
Energy transfer
Fairholme bought 280,000 shares of Energy Transfer (HEY, Financial), by expanding the equity portfolio by 0.24%. The stock traded at an average price of $ 10.10 per share during the quarter.
The company is now the eighth position in the fund.
The mid-size energy company, headquartered in Dallas, has a market cap of $ 26.66 billion; its shares were trading at around $ 9.86 on Monday with a price-to-earnings ratio of 7.53, a price-to-book ratio of 0.97 and a price-to-sell ratio of 0.5.
The GF value line suggests that the stock is currently slightly overvalued.
GuruFocus rated Energy Transfer’s financial strength at 3 out of 10. In addition to low interest coverage, the low Altman Z-Score of 1.05 warns that the company could be at risk of bankruptcy in the short term. However, ROIC exceeds WACC, so value is created.
The company’s profitability was rated 6 out of 10 thanks to expanding operating margin, strong returns surpassing the majority of its industry peers and a high Piotroski F-Score of 7, indicating that conditions business are healthy. Although earnings per share have declined in recent years, Energy Transfer still has one-star predictability.
Among the gurus invested in energy transfer,
David Abrams (Trades, Portfolio) holds the largest stake with 0.82% of its outstanding shares. Tepper,
Leon Cooperman (Trades, Portfolio), Pioneer Investments,
Francisco GarcÃa Parames (Trades, Portfolio) and Berkowitz also have important positions in the title.
Kinder Morgan
The fund bought 150,000 shares of Kinder Morgan (KMI, Financial), representing 0.22% of the equity portfolio. During the quarter, the shares traded at an average price of $ 17.74 each.
This is now Fairholme’s ninth-largest participation.
The Houston-based energy infrastructure company has a market cap of $ 38.66 billion; its shares were trading around $ 17.06 on Monday with a price-to-earnings ratio of 22.14, a price-to-book ratio of 1.27 and a price-to-sell ratio of 2.52.
According to the GF Value Line, the stock appears to be slightly undervalued.
Kinder Morgan’s financial strength was rated 3 out of 10 by GuruFocus due to low interest coverage. The low Altman Z-Score of 0.72 also warns that the company could be in danger of bankruptcy.
The company’s profitability fared better, scoring a 6 out of 10 due to strong margins and returns that outperform more than half of its competitors. Kinder Morgan also has a moderate Piotroski F-Score of 6. Despite recording a decline in revenue per share in recent years, it still has a predictability rank of one star.
With a 0.55% stake, Abrams is Kinder Morgan’s largest guru shareholder. Other major investor gurus include Pioneer Investments,
First Pacific Advisors (professions, portfolio),
Steven romick (trades, portfolio) and
Jeremy grantham (trades, portfolio).
Portfolio composition and performance
During the quarter, the fund also took positions in Enbridge Inc. (IN B, financial), Western Midstream Partners LP (WE S, Financial) and Williams Companies Inc. (WMB, Financial).
The real estate sector is the most represented in Fairholme’s $ 1.09 billion equity portfolio, consisting of 12 stocks, at 91.43%.
In its annual letter to shareholders, Berkowitz said the fund returned 46.9% in 2020, outperforming the S&P 500 by 18.4%.
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