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2008 Q2 Portfolio Holdings: Berkowitz, Rodriguez & Pabrai

by: Davy Bui August 21, 2008 | about stocks: AMGN / ARCC / BMY / BRK.B / CNQ / FRX / GSK / JOE / JTX / PFE / PNCL / ROST / SHLD / STMP / UNH / URI / WCG / WLP    
Davy Bui

Davy Bui

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In their 13F-HR filing for Q2 2008, Bruce Berkowitz and his cohorts at the Fairholme Fund continue their shift from energy into healthcare:

  • Fairholme opened huge (relative) positions in Pfizer (PFE), Forest Labs (FRX) and UnitedHealth Group (UNH). The UNH position echos Seth Klarman’s endorsement. I don’t follow the pharma industry too closely but it seems as if Berkowitz traded Glaxo (GSK) and Bristol Meyers Squibb (BMY) for PFE. I’ve been seeing more positive financial press coverage on Pfizer so perhaps momentum is building toward looking past Lipitor’s pending patent expiration. Read his thoughts on PFE here. I took a quick Google Finance look at Forest Labs and that stock looks promising. Great cash flows, rock-solid balance sheet with no debt but maybe some patent and pipeline issues — I’ve added this stock to my watchlist.
  • Berkowitz also added substantially to their Sears (SHLD) and United Rentals (URI) positions. Berkowitz’s thoughts on Sears and its chairman, Eddie Lampert, are well-known. SHLD seems to be a pseudo-value-investing watermark position — all the cool kids own it. I’ve glanced at it briefly but haven’t put in the time to value its real estate and branding assets.
  • Fairholme continues the reduction of their energy exposure as Berkowitz discussed back in March 2008 on Bloomberg. The Canadian Natural Resources (CNQ) position was reduced significantly and if you watch the interview in the link provided, he talks about costs rising as fast if not faster than revenues for producers like CNQ. In fact, I’ve discussed this aspect of energy investing in the past — what I call the “receding horizon” effect, especially in the oil sands area (which is why I have only backdoor oil sands exposure via Devon). Curiously, he also sold off a good chuck of St Joe’s (JOE), which he had been talking up fairly recently. I don’t know whether the thesis on JOE has changed or if he just saw better opportunities.

Robert Rodriguez oversees the First Pacific Advisors family of funds [FPA], of which he handles the main fund with others running the others. Q2 2008 holdings are revealed for all funds in the latest 13F filing:

  • Continuing on the healthcare theme, FPA’s biggest new positions were Amgen (AMGN) and Wellpoint (WLP). I’ve had Amgen on my radar for quite a while but didn’t like the fact that it doesn’t pay a dividend. As for WLP, again, no dividend but can three of the top value investors in the world in Klarman, Berkowitz and Rodriguez all be wrong on this stock? This may be a "ready,fire,aim” candidate if it drops again.
  • Big re-ante on Ares Capital (ARCC), which like the rest of the BDCs, has been battered. Of the professional money managers I follow, this is the one of the few BDC positions I’ve seen. I chalked it up to pro managers being bigger fans of share buybacks rather than dividends. I’m taking a quick look through their presentations — debt-equity ratio at 0.64 and 60% of the portfolio weighted in senior debt instruments, both better than my ACAS position. May warrant a closer look.
  • FPA dumped a whole bunch of Ross Stores (ROST) and Rent-A-Center (RCII), possibly due to value realizations as both are near 52-week highs.

Mohnish Pabrai has had a rough ride as of late and his 13F filing leaves me with the impression that he’s hunkering down:

  • Pabrai dumped a big chunk of cash into Berkshire B shares (BRK.B), which he has likens to a holding place or semi-cash equivalent. This along with a raise on Wellcare (WCG) and a new position in Jackson Hewitt (JTX), a tax preparation company with good cash flow and the #2 position in a duopoly with a weakened H&R Block, were the major deployments of cash for Pabrai. JTX may be interesting — regardless of the economy, people still need to do taxes but with the advent of tax software and now online tax programs, I’d be interested in seeing a business analysis.
  • Pabrai’s positions in the air transport sector continue to suffer, with Air Transport Services Group (ATSG), fka ABX Holdings, and Pinnacle Airlines (PNCL) each taking a cliff dive during the quarter. While PNCL came back a bit, ATSG is currently under $1 per share. I’ve not examined either company in detail but these positions combined with some of his financial bets have really killed his performance in the last year or so.
  • He also gave up on the stamps.com (STMP) position after holding less than a year.

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