The Fairholme Fund (Trades, Portfolio), part of Miami-based Fairholme Capital Management, revealed in its first quarter 2023 portfolio update filing that its top trades during the quarter included the closure of its position in Intel Corp. (INTC, Financial) and reductions to its positions in Commercial Metals Co. (CMC, Financial), The St. Joe Co. (JOE, Financial), Federal Home Loan Mortgage Corp. (FMCC, Financial) and Federal National Mortgage Association Fannie Mae (FNMAS.PFD, Financial).
The fund concentrates its investments in a small number of companies. Berkowitz believes that the more diversified the portfolio is, the more likely that the returns will be average. The fund applies a Benjamin Graham-style approach to investing, looking for stocks that have strong management teams, generate free cash and have deeply low valuations.
As of February 2023, the fund’s $1 billion 13F equity portfolio contains six stocks. The top four sectors in terms of weight are real estate, energy, basic materials and financial services, with weights of 89.02%, 5.71%, 4.07% and 1.20%.
Investors should be aware that portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Intel
Fairholme Fund (Trades, Portfolio) sold all 298,300 of its shares of Intel (INTC, Financial), trimming 0.94% of its equity portfolio.
Shares of Intel averaged $28.10 during the first quarter; the stock is modestly undervalued based on its price-to-GF-Value ratio of 0.77 as of Friday.
The Santa Clara, California-based semiconductor company has a GF Score of 82 out of 100 based on a GF Value rank of 9 out of 10, a profitability rank of 8 out of 10, a financial strength rank of 6 out of 10 and a rank of 5 out of 10 for momentum and growth.
Although the company had 10 years of positive net income over the past decade, Intel’s gross profit margin has declined by approximately 6.3% per year on average over the past five years despite outperforming approximately 71% of global competitors.
Other gurus with holdings in Intel include PRIMECAP Management (Trades, Portfolio), Chris Davis (Trades, Portfolio)’ Davis Selected Advisors and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Commercial Metals
Fairholme sold 454,000 shares of Commerical Metals (CMC, Financial), slicing 42.76% of the position and 2.35% of its equity portfolio.
Shares of Commercial Metals averaged $52.10 during the first quarter; the stock is fairly valued based on its price-to-GF-Value ratio of 1.07 as of Friday.
The Irving, Texas-based steel company has a GF Score of 88 out of 100 based on a momentum rank of 10 out of 10, a growth rank of 9 out of 10 and a rank of 8 out of 10 for financial strength and profitability. Despite this, the company’s GF Value ranks just 3 out of 10.
Commercial Metals’ high profitability rank is driven by several positive investing signs, which include a return on equity that outperforms approximately 88% of global competitors and an operating margin that has increased by more than 30% per year on average over the past five years.
The St. Joe Co
Fairhome sold 137,000 shares of The St. Joe Co. (JOE, Financial) during the first quarter. Despite this, the fund still owns 20,784,524 shares, giving the position 89.02% of its equity portfolio weight.
Shares of The St. Joe Co averaged $41.63 during the first quarter; the stock is modestly undervalued based on its price-to-GF-Value ratio of 0.77 as of Friday.
The Panama City Beach, Florida-based real estate development and operating company has a GF Score of 91 out of 100 based on a rank of 9 out of 10 for growth and GF Value, a financial strength rank of 5 out of 10, and a rank of 8 out of 10 for momentum and profitability.
The company’s high growth rank is driven by three-year revenue and earnings growth rates outperforming more than 83% of global competitors.
Federal Home Loan Mortgage Corp
The fund sold 800,000 shares of Federal Home Loan Mortgage Corp. (FMCC, Financial), trimming 15.58% of the position and 0.19% of its equity portfolio.
Shares of Freddie Mac averaged 44 cents during the first quarter; the stock is significantly undervalued based on its price-to-GF-Value ratio of 0.39.
Freddie Mac has a GF Score of 60 out of 100 based on a rank of 5 out of 10 for momentum and profitability, a financial strength rank of 1 out of 10 and a rank of 4 out of 10 for growth and GF Value.
Fannie Mae
The fund sold 3,070,400 preferred shares of Fannie Mae (FNMAS.PFD, Financial), chopping 71.21% of the position and 0.76% of its equity portfolio. Shares averaged $2.34 during the first quarter.
Fannie Mae has a GF Score of 62 out of 100 based on a GF Value rank of 4 out of 10, a financial strength rank of 1 out of 10, and a rank of 5 out of 10 for profitability, growth and momentum.
