Bruce Berkowitz's Top Positions (Last Part)

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The “Stock Manager of the Decade” Bruce Berkowitz has managed to deliver more than 13% annual return in the first 10 years of the 21st century with quite a concentrated portfolio. Although the concentration has made him lose more than 32.4% in 2011, it also helped him gain a return of more than 37% in 2012. I have written about his four biggest positions, including AIG, Sears Holdings, Bank of America and St. Joe. In this article, I will talk about other three big positions in Bruce Berkowitz’s portfolio, which when combined accounted for nearly 20% of his portfolio. They are MBIA (NYSE: MBI), CIT Group (NYSE: CIT), and Leucadia National (NYSE: LUK).

Three Catalysts for MBIA

MBIA is the provider of several financial services, including financial guarantee insurance, reinsurance, and asset management advisory. MBIA has three main business segments: US Public Finance Insurance; Structured Finance and International Insurance; and Advisory Services. The majority of MBIA’s revenue came from US Public Finance Insurance, with $599 million in revenue, accounting for 57.7% of the total revenue. Structure Finance and International Insurance was the second biggest revenue contributor, with $319 million in revenue in 2011. However, the consolidated revenue of the company was negative in 2011, at -$1.56 billion, due to the large realized and unrealized losses on insured derivatives and other settlements.

Bruce Berkowitz owned nearly 44.3 million shares of MBIA, accounting for 6.4% of his total portfolio as of September 2012. He liked MBIA due to three main catalysts. The first catalyst was one of its subsidiaries, National Public Finance Guarantee Corporation.  This subsidiary is quite independent of MBIA. Berkowitz considered this firm as a “profitable, stale and valuable enterprise.” The second catalyst was the significant decrease in structured financial exposures of MBIA Insurance since 2007. During the same time period, MBIA has paid $5 billion to terminate $68 billion insurance policies. In addition, MBIA has experienced a 69% decline in claims paid on second-lien RMBS since 2009.  The third catalyst was the reimbursement for claims paid. Berkowitz estimated that the company might recover at least 50% of the gross claim paid in a 2012 settlement, or all in a 2013 trial. 

A Leveraged Bank Holding Company

The next Bruce Berkowitz position was in CIT Group, a bank holding company. CIT mainly focused on commercial clients, including small business and middle-market companies, with customers in more than 30 industries in 20 countries. CIT operates in several segments such as Corporate Finance, Transportation Finance, Trade Finance, Vendor Finance, and Consumer. The majority of its interest income came from Corporate Finance and Vendor Finance segments, with $934 million and $793 million, respectively, accounting for 42.2% and 35.8% of the total interest income, respectively. As of September 2012, CIT booked more than $8 billion in total stockholders’ equity, $8.7 billion in deposits, and $24.1 billion in long-term debt. Berkowitz owned more than 11.1 million shares in the company, accounting for 6.3% of his total portfolio. At the current trading price of $39.80 per share, CIT is valued at 12.5x forward earnings and 1x its book value.

And a Mini-Berkshire

The last stock, which accounted for more than 5% of Bruce Berkowitz’s portfolio, was Leucadia National Corporation. As of September 2012, he held more than 18.24 million shares in the company, accounting for 5.9% of his total portfolio. Leucadia is the holding company with many different businesses, including manufacturing, oil & gas drilling, real estate, beef processing, etc.  Under the leadership of Ian Cummings and Joseph Steinberg, Leucadia has managed to grow its book value at an annualized compounded rate of more than 17.86% for more than 30 years. It was often referred to as the mini Berkshire Hathaway. Leucadia’s investment philosophy was to acquire assets and companies, which were in trouble or out of favor. At the current trading price of $24.10 per share, the total market capitalization is nearly $5.9 billion. The market is valuing Leucadia at 1x its book value.

Foolish Bottom Line

Out of the three companies mentioned above, I like Leucadia the most. Leucadia had management with a great investing record in more than three decades. In addition, it had high insider ownership; Ian Cumming and Joseph Steinberg combined owned around 8.36% of the total company. I strongly believe that Leucadia could benefit its long-term shareholders in the long run. 


hoangquocanh has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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