After losing over 32% on heavy bets on financials in 2011,
Bruce Berkowitz
's
Fairholme Fund
(
FAIRX
) has rebounded to the top 1% of funds, according to Morningstar.
Berkowitz often emphasizes that he does not believe performance
can be measured by a revolution of the sun but on a long-term
basis. Though his fund suffered a challenging year, some of his
long-term bets are beginning to show the recovery he anticipated.
Here is an update on the top four: American International Group (
AIG
), Sears Holdings Corp. (
SHLD
), CIT Group (
CIT
) and Bank of America (
BAC
).
AIG (
AIG
)
AIG is up 38% so far in 2012, after a difficult 2011 in which it
lost 62%. It is Berkowitz's largest holding with more than 30
percent of his portfolio's weighting.
AIG was once a leading insurance company, until the 2008
financial crisis when catastrophes led to the government bailing
it out and eventually owning most of it. Since then, recovery has
been uneven, as the company's top-line has fallen while earnings
increased.
In the first quarter of 2012, reported May 3, the company had
earnings of $3.2 billion, compared to earnings of $1.3 billion in
the prior-year quarter, with increases seen in two out of three
of its insurance operations.
AIG is also continuing to clean up the mess from its
near-collapse. Last week, it repaid its part of the $70 billion
in bailout loans the Federal Reserve Bank of New York gave it and
Bear Stearns Cos., through an auction of certain Maiden Lane III
assets. This means it has repaid all of its loans from the
period. The U.S. Treasury's stake has also reduced by $17.5
billion, and its Maiden Lane II and Maiden Lane III loans have
been completely repaid. As of June 14, the U.S. government owns
$30 billion worth of shares of AIG common stock, after reducing
total government support by 83% or $152 billion since the crisis.
Sears Holding Corp. (
SHLD
)
Berkowitz's Sears investment is not as related to the crisis as
his financial holdings, as he has owned shares of the retailer
since 2007. But the company has experienced well-publicized
trouble in recent years as investor Eddie Lampert has taken an
activist position in turning it around. The company's share price
plunged 56% in 2011, and has come back 71% so far in 2012, which
has contributed a great deal to Berkowitz's year-to-date returns.
Sears' first-quarter results indicate it will fend off bankruptcy
again. In the three months ended April 28, it earned $189 million
and said may grow its capital position $1.7 billion in the next
year. The profitability was not due to a grand increase in sales,
however. It made $233 million from selling stores and real
estate, while sales shrunk modestly.
CEO Lou D'Ambrosio said on Bloomberg last week that the company
is open to selling more assets amid its turnaround. He also
denied that the company was in the process of breaking up or
being liquidated.
Bank of America (
BAC
)
Bank of America's stock price has made a 46% comeback so far this
year, after falling 61% last year. Because Berkowitz bought most
of his shares at even higher prices, he has yet to make a
significant profit on the stock.
In the first quarter, BAC reported net income of $653 million, a
decline from $2 billion in the year-ago quarter. Revenue was
$22.5 billion, also a decline from $27.1 billion in the year-ago
quarter.
The company has benefited from an improving economy and from
strengthening and simplifying its business, as it saw earnings
improvements across all of its segments compared to the previous
quarter. It also strengthened its balance sheet in the quarter
through increasing its Tier 1 common equity ratio 92 basis
points, achieving record liquidity and continuing to reduce
risk-weighted assets.
The company has continued to cut costs recently. Last week it
announced that it will lay off 675 workers in Fort Lauderdale,
Fla., and 130 workers in Hialeah, Fla. It is also considering a
sale of Merrill Lynch's non-U.S. wealth management to Julius
Baer.
CIT Group (
CIT
)
CIT Group (
CIT
), Berkowitz's fourth-largest holding, has not contributed to his
gain this year as it has declined 1% so far in 2012, after
declining 28% in 2011. Berkowitz has been selling shares of the
bank holding company each quarter since 2011.
In the first quarter, CIT reported $1.1 billion in revenue,
declined from $1.3 billion in the year-ago quarter and $1.2
billion in the previous quarter. Its net loss was $447 million, a
decline from net income of $65.6 million in the year-ago quarter
and $33.9 million the previous quarter. The net loss included
debt refinancing charges of $620 million.
Last week, CIT announced it was seeking acquisitions to make it
"more bank-like," particularly in growth markets such as China
and Brazil, according to Dow Jones Newswires. Since opening its
online bank late last year, it has raised more than $1.5 billion
in deposits. More deposits will strengthen its capital case,
allowing it to enhance its lending profitability.
Berkowitz's investments geared toward a long-term window will
require more time to see if they continue to pan out as the year
unfolds. His other top holdings are: Leucadia National (
LUK
), St. Joe Co. (
JOE
), MBIA Inc. (
MBI
) and Berkshire Hathaway (
BRK.A
)(
BRK.B
).
See more of his stock holdings here
.
Also check out the
Undervalued Stocks
, Top Growth Companies and High Yield stocks of Bruce
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