"Tracking Bruce Berkowitz’s Fairholme Portfolio – Q2 2018 Update"
"Bruce Berkowitz’s 13F stock portfolio value increased this quarter from $701M to $744M.Fairholme increased Vista Outdoor and AT&T while dropping Seritage Growth Properties.The portfolio is very concentrated with St. Joe Companies, Vista Outdoor, and Sears Holdings forming almost ~80% of the entire portfolio.This article is part of a series that provides an ongoing analysis of the changes made to Fairholme’s 13F stock portfolio on a quarterly basis. It is based on Fairholme’s regulatory  filed on 08/14/2018. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q1 2018.Berkowitz’s 13F stock portfolio value increased ~6% from $701M to $744M this quarter. The portfolio continues to be very concentrated with ~80% of the holdings invested in St. Joe Companies, Vista Outdoor, and Sears Holdings.Berkowitz’s flagship Fairholme Fund (FAIRX) has generated significant alpha since its December 1999 inception: thru Q2 2018, the fund returned 	at an annualized rate of 9.24% compared to 5.42% for S&P 500 index. FAIRX has however underperformed over the most recent 10-year period. Large equity holdings that are not in the 13F report include Fannie Mae (FNMA) pfds (FNMAS), Freddie Mac (FMCC) pfds (FMCKJ), Imperial Metals (IPMLF), and International Wire Group (ITWG). Cash and Equivalents are at ~25% and Fannie/Freddie Pfds at ~17% of AUM. The other funds under Fairholme umbrella are Fairholme Focused Income Fund (FOCIX) and Fairholme Allocation Fund (FAAFX).Stake Disposals:Seritage Growth Properties (SRG): SRG was a top-three ~8% position as of last quarter. Seritage was spun-off from Sears Holdings through a Rights Offering in July 2015 and Fairholme participated in the transaction. Trading started at $37 per share and it currently trades at $49.78. There was a ~50% reduction last quarter at prices between $34.50 and $43 and the disposal this quarter was at prices between $34.50 and $44.50.New Stakes:HRG Group Inc. and Spectrum Brands (SPB): Combined, these two positions are at 5.4% of the portfolio. Last month, HRG Group’s controlling interest structure was unwound by merging with Spectrum Brands. SPB traded at prices between $69 and $100 during the quarter and currently goes for $87.37.Citigroup Inc. (C): C is a 2.11% portfolio stake established this quarter at prices between $65.50 and $73 and the stock currently trades at $70.01.Stake Increases:Vista Outdoor (VSTO): VSTO is a large (top three) 10.52% portfolio stake established last quarter at prices between $14 and $20 and increased by ~80% this quarter at prices between $13 and $18. The stock currently trades at $18.60.Note: Vista Outdoor is a 2015 spinoff from Alliant Techsystems which in turn was spun off from Honeywell. It is a dominant producer of ammunition that is purchased by military, police, and governments around the world. Faiholme thinks the shares are currently down because of consumer oversupply issues. They expect Vista Outdoor to sell non-core assets and reduce debt.AT&T Inc. (T): T was a minutely small position established last quarter. This quarter saw the stake built up to a 5.30% position at prices between $31.50 and $36. The stock currently trades at $32.24.Oaktree Capital Group (OAK): OAK is a small ~1% position purchased last quarter at prices between $39.50 and $46 and doubled this quarter at prices between $39 and $42.50. The stock is now at $41.05.Stake Decreases:St Joe Companies (JOE): JOE is the largest stake by far at ~66% of the 13F portfolio. The bulk of the position was purchased in the 2008-2009 timeframe and there have only been minor adjustments since. Last three quarters of 2017 had seen a combined ~14% increase at prices between $16.35 and $19.55.  Currently, it trades at $17.75. Berkowitz’s ownership stake is at ~44% of the business. Last two quarters have seen minor trimming.Note: Fairholme’s thesis is centered on the idea that JOE is undervalued - $5.1K per acre net of cash. Growth should serve as catalyst over next few years: 3000 homes for 50-and-better in 2020 thru a joint venture, 813K commercial space 87% leased, and airport (Northwest Florida Beaches International Airport) reaching 1M annual passenger traffic. The company has repurchased one-third of its outstanding shares over the last few years as well.Sears Holdings Corp (SHLD): Sears is Berkowitz’s third-largest 13F position at ~6% of the portfolio. The original stake was established in 2007 although the position size has fluctuated over the years. The current stock price ($1.83) is far below Fairholme’s cost-basis of ~$61. There was a ~13% trimming in Q4 2017 and that was followed with a ~27% selling last quarter at prices between $2.07 and $3.80. There was marginal trimming this quarter.Note: In their Q4 2017 report, Faiholme acknowledged their failure to foresee operating losses that significantly diminished the value of the assets - even though they got the asset values largely correct, their thesis was proved wrong.Vistra Energy (VST): The ~3% VST positon was purchased last quarter at prices between $17.50 and $21 and it is now above that range at $22.41. There was marginal trimming this quarter.Note: Since emerging from bankruptcy reorg in December 2016, Vistra Energy has returned ~45%.Sears WTS 28.41 Strike: The very small 0.11% position in Sears WTS had seen a ~12% reduction in Q4 2017 and that was followed with a ~4% trimming last quarter. There was a marginal reduction this quarter.Kept Steady:Jefferies Financial Group (JEF) previously Leucadia National: JEF is a very long-term holding that was built-up over several years. The position had seen large reductions since Q2 2013. Recent activity follow: Q4 2015 saw a ~55% reduction at prices between $16 and $21 and the remaining stake was almost eliminated the following quarter at prices between $14.50 and $17.50. It currently trades at $23.77.Clipper Realty (CLPR): The minutely small 0.32% CLPR position was kept steady this quarter.The spreadsheet below highlights changes to Fairholme’s 13F stock holdings in Q2 2018:Regulatory Filings thru 5/29/2018: 13G/A – 3/23 – SRG – ~1.7M shares – 4.9% of business, Form 4 – 3/19, 3/13, 3/8 – JOE – minor transactions,"