10 Best Stocks to Invest in According to Bruce Berkowitz’s Fairholme Capital

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In this article we will take a look at the 10 best stocks to invest in according to Bruce Berkowitz’s Fairholme Capital. You can skip our detailed analysis of Berkowitz’s history, investment philosophy, and hedge fund performance, and go directly to 5 Best Stocks to Invest In According to Bruce Berkowitz’s Fairholme Capital.

Bruce Berkowitz, the man dubbed the “2009 Domestic Stock Fund Manager of the Year,” and the “Stock Manager of the Decade” by Morningstar, Inc., is an American equity fund manager and the founder of Fairholme Capital Management. His fund was established in 1997. 

According to Fairholme Capital Management’s annual report for 2020, The Fairholme Fund’s annualized returns since its inception in 1999 were 10.64%, transcending the S&P 500 value of 6.63%. The fund “increased 46.9% versus an 18.4% increase for the S&P 500 Index” last year, according to the same report. Its financial state coming into 2021 boasts high resilience and the potential to surpass its own current progress. As of the end of 2020, Fairholme Capital Management had the highest stake in The St. Joe Company (NYSE: JOE), worth 55.6% of net assets.

The best way to describe Berkowitz’s investment strategy is by using the phrase ‘quality over quantity.’ In his financial career, Berkowitz has tended to focus on a lesser number of companies, holding the belief that the lesser, the better. The more companies a hedge fund has a stake in, the worse it will perform, according to Berkowitz’s own investment patterns. The talented stock fund manager is also mostly taken in by undervalued and obscure companies, provided their management is top-notch. Reportedly, Berkowitz developed an affinity for this particular method of investing by taking a leaf out of Benjamin Grahams’ book titled “The Intelligent Investor.” 

In a 2018 interview, Berkowitz mentioned that his and his fund’s primary focus before investing anywhere is price.  Berkowitz thus believes in setting the right price, with a safe margin, before deciding to invest in any stock. This is followed by the strength and resilience of the company itself. As mentioned already, Berkowitz has an affinity for companies with good and strong management. If a company has the perfect price and strength to survive, it’s somewhere Berkowitz and Fairholme Capital Management are willing to put their money.

Speaking of companies where the two are willing to invest, it’s only natural for us to get to the point already. Fairholme Capital Management currently holds shares in only 15 stocks – remember: quality over quantity. Of these, the above-mentioned The St. Joe Company (NYSE: JOE) is the lucky company with the highest number of shares held by Fairholme Capital, followed by Berkshire Hathaway Inc., (NYSE: BRK.A), Enbridge Inc. (NYSE: ENB) and AT&T Inc. (NYSE: T), among others. All the stocks mentioned on the hedge fund’s portfolio have proven to be profitable. For instance, The St. Joe Company (NYSE: JOE) gained 18% year-to-date, while Berkshire Hathaway Inc., (NYSE: BRK.A) and Enbridge Inc. (NYSE: ENB) gained 26% and 17% YTD, respectively.

Verizon Communications Inc. (NYSE: VZ)  was a new addition in Fairholme Capital’s portfolio in the first quarter. The fund bought 76,900 shares of Verizon Communications Inc. (NYSE: VZ), worth $4.5 million. Verizon Communications Inc. (NYSE: VZ), which has a dividend yield of over 4%, recently announced an on-site 5G network solution for large enterprise and public sector clients.

Fairholme also has a stake, albeit small, in Apple Inc (NASDAQ: AAPL). As of the end of the first quarter, the fund owns 4,260 shares of the company, worth $520,000. Apple Inc (NASDAQ: AAPL) is down 2.5% year to date. Oppenheimer analyst Martin Yang recently said in a note that Apple’s WWDC 2021 was a “relative letdown” compared to previous years. However, the analyst reiterated an Outperform rating for the stock and $160 price target.

 

Berkowitz is an exception in an industry that is reeling from losses. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Best Stocks to Invest In According to Bruce Berkowitz’s Fairholme Capital

10. The Williams Companies, Inc. (NYSE: WMB)

Berkowitz’s Stake Value: $7,218,000
Percentage of Bruce Berkowitz’s 13F Portfolio: 0.59%
Number of Hedge Fund Holders: 34

This American energy company is ranked 10th on our list of the best stocks to invest in according to Bruce Berkowitz’s Fairholme Capital. With headquarters in Tulsa, Oklahoma, The Williams Companies, Inc. (NYSE: WMB) focuses on the processing and transportation of natural gas. It also owns petroleum and electricity generating assets, and is a Fortune 500 company. The Williams Companies, Inc.’s (NYSE: WMB) stock is a component of the S&P 500.

The stock rose 40% year-to-date, and the company’s Q121 results were revealed to be promising as well. Williams (NYSE:WMB) posted a non-GAAP EPS of $0.35 for the first quarter of 2021, beating the Street’s estimate by $0.06. Revenue in the quarter came in at $2.61 billion, up 36.6% YoY and above the analysts’ consensus by $640 million.

Longleaf Partners Global Fund, in their Q4 2020 investor letter, mentioned The Williams Companies, Inc. (NYSE: WMB). Here is what the fund said:

“Williams (1%, 1.53%; 4%, 0.18%), the natural gas pipeline company, was a strong contributor for the year. Similar to CNX, Williams was a strong absolute and relative performer in the portfolio. In the most recent quarter, EBITDA increased 4% quarter-over-quarter and year-over-year, highlighting the value of these assets and consistency of their earnings. We began buying these assets at a discount in late 2019, as the market feared negative effects from customer bankruptcies and low natural gas prices, and then we added more in a totally irrational market panic in March, before its share price stabilized and rebounded significantly this year as it became clear that these worries would not impact the business’s FCF or long-term value per share. Williams is on track to generate 2021 EBITDA growth and FCF after all capex and dividends, but the share price does not yet reflect the quality of the business or the significant future upside from today’s level.”

9. Energy Transfer LP (NYSE: ET)

Berkowitz’s Stake Value: $7,904,000
Percentage of Bruce Berkowitz’s 13F Portfolio: 0.65%
Number of Hedge Fund Holders: 25

Energy Transfer LP (NYSE: ET) is an American company focusing on natural gas and propane pipeline transport. The company was established in 1995, and ranks 9th on our list of the best stocks to invest in according to Bruch Berkowitz’s Fairholme Capital.

This April, Energy Transfer LP (NYSE: ET) announced a $0.46 per share quarterly dividend, with a forward dividend yield of 7.46%, while currently, its dividend yield stands at 5.61%. The company also announced a merger to gain Enable Midstream Partners, a move expected to be positive for the company’s credit metrics.

8. Vistra Corp. (NYSE: VST)

Berkowitz’s Stake Value: $8,714,000
Percentage of Bruce Berkowitz’s 13F Portfolio: 0.71%
Number of Hedge Fund Holders: 46

The next company on our radar is Vistra Corp. (NYSE: VST). The company, ranked 8th on our list of the 10 best stocks to invest in according to Bruce Berkowitz’s Fairholme Capital, is a nuclear electric power generation company.

In April, Vistra (NYSE:VST) said it expects a $1.6 billion net financial impact from February’s winter storm on its FY 2021 adjusted EBITDA from continuing operations.

Earlier this year, billionaire Bruce Flatt said that Vistra Corp. (NYSE: VST) remains undervalued. Being the CEO of Brookfield Asset Management, Flatt also commented that Brookfield plans on holding on to its shares in Vistra Corp. (NYSE: VST).

Like Verizon Communications Inc. (NYSE: VZ), Apple Inc (NASDAQ: AAPL), Berkshire Hathaway Inc., (NYSE: BRK.A), Enbridge Inc. (NYSE: ENB) and AT&T Inc. (NYSE: T), Vistra (NYSE:VST) is one of the most notable stocks in Bruce Berkowitz’s Q1 portfolio. 

7. Western Midstream Partners, LP (NYSE: WES)

Berkowitz’s Stake Value: $10,347,000
Percentage of Bruce Berkowitz’s 13F Portfolio: 0.85%
Number of Hedge Fund Holders: 8

Next on our list of the 10 best stocks to invest in according to Bruce Berkowitz’s Fairholme Capital is Western Midstream Partners, LP (NYSE: WES). This American natural gas liquids company deals with midstream energy assets and ranks 7th on our list.

Western Midstream Partners, LP (NYSE: WES) has returned 110% over the last 12 months. As for their Q121 report, it shows that Western Midstream Partners, LP (NYSE: WES) had an adjusted EBITDA of $443 million, while also generating $214 million in free cash flow.

Like Verizon Communications Inc. (NYSE: VZ), Apple Inc (NASDAQ: AAPL), Berkshire Hathaway Inc., (NYSE: BRK.A), Enbridge Inc. (NYSE: ENB) and AT&T Inc. (NYSE: T), Western Midstream Partners, LP (NYSE: WES) is one of the most notable stocks in Bruce Berkowitz’s Q1 portfolio. 

6. CVS Health Corporation (NYSE: CVS)

Berkowitz’s Stake Value: $11,059,000
Percentage of Bruce Berkowitz’s 13F Portfolio: 0.91%
Number of Hedge Fund Holders: 62

Finally breaking away from the monotony of energy generating companies, next on our list at rank 6 is CVS Health Corporation (NYSE: CVS). This is an American healthcare company and owns several other businesses like CVS Pharmacy, CVS Caremark, and Aetna.

Last month, CVS Health Corporation (NYSE: CVS) was downgraded in an analyst report of Guggenheim Securities. The move labeled CVS Health Corporation (NYSE: CVS) ‘Neutral’ which was a step back as it was previously labeled at ‘Buy.’ However, despite the downgrade analyst Glen Santangelo still wrote that CVS Health Corporation (NYSE: CVS) is indicating reasonable growth for this year. 

Additionally, the company’s Q1’21 report declared a 3.5% revenue growth. This, alongside the fact that CVS Health Corporation (NYSE: CVS) gained 22% year-to-date indicates that the above assessment may be well-founded.

Like Verizon Communications Inc. (NYSE: VZ), Apple Inc (NASDAQ: AAPL), Berkshire Hathaway Inc., (NYSE: BRK.A), Enbridge Inc. (NYSE: ENB) and AT&T Inc. (NYSE: T), CVS Health is one of the most notable stocks in Bruce Berkowitz’s Q1 portfolio.

ClearBridge Investments, in its Q1 2021 investor letter, mentioned CVS Health Corporation (NYSE: CVS). Here is what the fund said:

“Our underweights in health care and staples contributed to relative performance during the period. As we continue to focus
the portfolio on high-conviction ideas, we sold CVS in the first quarter, in the health care sector.”

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Disclosure: None. 10 Best Stocks to Invest In According to Bruce Berkowitz’s Fairholme Capital is originally published on Insider Monkey.