3 Bruce Berkowitz Traditional Stocks
Bruce Berkowitz (Trades, Portfolio), leader of Fairholme Capital Management, applies Benjamin Graham’s strategy when picking stocks, looking for companies that have strong management, generate high free cash flow and trade at a deep discount relative to their intrinsic value.
Believing that a more diversified portfolio leads to more average performance, the guru’s Miami-based firm concentrates its investments in a relatively small number of companies.
In the current environment of high inflation, rising interest rates and geopolitical uncertainty, many investors are likely looking for opportunities to seize. As a result, they might be interested in some of the stocks in the guru’s $1.21 billion equity portfolio that are undervalued under an earnings-based discounted cash flow model.
GuruFocus portfolio data, which is based on 13F filings as of June 30, shows that the current positions in Berkowtiz’s stock portfolio that have a margin of safety and high predictability are DR Horton Inc. (DHI, Financial), West Fraser Timber Co. Ltd. (WFG, Financial) and Intel Corp. (INTC, Financial).
Investors should be aware that 13F filings do not provide a complete picture of a company’s holdings as the reports only include its positions in US stocks and US certificates of deposit, but they can still provide valuable insight. Additionally, reports only reflect trades and holdings as of the most recent portfolio deposit date, which may or may not be held by the reporting company today or even when this article was published.
DR Horton Shares (DHI, Financial) are trading at an 86.77% discount to their fair value of $537.76 under the earnings-based DCF model.
The Arlington, Texas-based homebuilder has a market capitalization of $24.54 billion; its shares were trading around $70.78 on Thursday with a price-to-earnings ratio of 4.53, a price-to-book ratio of 1.35 and a price-to-sales ratio of 0.79.
The GF value line suggests that the stock, although undervalued, is a possible value trap currently based on historical ratios, past performance and future earnings projections. As such, potential investors should do their research thoroughly before making a decision.
The GF score of 98 out of 100 indicates that the company has high outperformance potential. It received high marks in all areas.
GuruFocus rated DR Horton’s financial strength at 6 out of 10. Although the company has issued new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The robust Altman Z-Score of 5.24 also indicates that it is in good standing. Return on invested capital dwarfs the weighted average cost of capital, meaning that value is created as the business grows.
The company’s profitability scored 10 out of 10, driven by operating margin expansion, returns on equity, assets and capital that outperform the majority of competitors and a Piotroski F-Score moderate 6 out of 9, implying that conditions are typical for a stable society. Steady earnings and revenue growth contributed to a predictability rating of four out of five stars. According to research by GuruFocus, companies in this ranking have an average return of 9.8% per year over a 10-year period.
Among the gurus invested in DR Horton,
George Soros (Trades, Portfolio) holds the largest stake with 0.86% of its shares outstanding. The
Smead Value Fund (Businesses, Portfolio),
First Eagle investment (Businesses, Portfolio),
Glenn Greenberg (Businesses, Portfolio) and the
Parnassus Endeavor Fund (Trades, Portfolio) also have large positions in the stock.
West Fraser Woods
West Fraser Timber’s (WFG, Financial) is trading at a 76.21% discount to its DCF fair value of $315.62.
The Canadian forestry company, which produces lumber, plywood, pulp, newsprint, wood chips and other products, has a market capitalization of $6.59 billion; its shares were trading around $75.18 on Thursday with a price-to-earnings ratio of 3.16, a price-to-book ratio of 0.89 and a price-to-sales ratio of 0.81.
According to the GF Value Line, the stock is currently slightly undervalued.
Additionally, the GF score of 96 suggests the company has high outperformance potential, raking in high ranks all around.
West Fraser Timber’s financial strength and profitability were both rated 9 out of 10 by GuruFocus. Along with a comfortable level of interest coverage, the lofty Altman score of 4.95 indicates he’s in good standing, even as assets accumulate at a faster rate than income growth. Value creation also occurs since the ROIC eclipses the WACC.
The company is backed by strong margins and returns that outperform the majority of its industry peers along with a moderate Piotroski F-Score of 6. Despite recording steady earnings and revenue growth, the ranking of West Fraser Timber’s four-star predictability is under scrutiny.
With 0.62% of its shares outstanding,
Murray Stahl (Trades, Portfolio) holds the largest position in West Fraser Timber. Other shareholder gurus are
Jeremy Grantham (Businesses, Portfolio),
Jim Simons (Businesses, Portfolio)’ Renaissance Technologies,
Joel Greenblatt (Businesses, Portfolio) and
Scott Black (Jobs, Portfolio).
Generating a DCF fair value of $83.12, Intel shares (INTC, Financial) are trading with a margin of safety of 66.15%.
The semiconductor chipmaker, headquartered in Santa Clara, Calif., has a market capitalization of $114.40 billion; its shares were trading around $28.10 on Thursday with a price-to-earnings ratio of 5.96, a price-to-book ratio of 1.14 and a price-to-sales ratio of 1.56.
Based on the GF value line, the stock currently looks significantly undervalued.
The GF score of 85 implies that the company should have good outperformance potential, having scored high for everything but its momentum rank.
GuruFocus rated Intel’s financial strength at 7 out of 10, as it is supported by a comfortable level of interest coverage. The Altman Z-Score of 2.62, however, warns it’s under pressure. The ROIC also exceeds the WACC, so value is created.
The company’s profitability was rated 9 out of 10 due to operating margin expansion, strong returns ahead of competitors, and a moderate Piotroski F-Score of 5. Intel’s two-star predictability is under scrutiny due to declining revenue-per-share growth over the past year. GuruFocus found companies with this rank yield, on average, 6% per year.
PRIMECAP management (Trades, Portfolio) is the company’s largest guru shareholder with a 1.18% stake.
Chris Davis (Businesses, Portfolio),
Al Gore (Businesses, Portfolio),
Seth Klarman (Businesses, Portfolio), the
Parnassus Endeavor Fund (Businesses, Portfolio),
Michael Price (Businesses, Portfolio),
Ken Fisher (Businesses, Portfolio), Grantham,
Ray Dalio (Businesses, Portfolio) and
Tweedy Browne (Trades, Portfolio) also have notable stakes in Intel.