"Tracking Bruce Berkowitz’s Fairholme Portfolio – Q4 2014 Update"
"Bruce Berkowitz’s US stock portfolio increased marginally this quarter from $7.26B to $7.30B.Fairholme's largest three stakes continue to be American International Group, Bank of America, and Sears Holdings. They together account for around 84% of the portfolio.The large American International Group position was reduced and Berkowitz participated in the Sears Holdings capital raises.This article is part of a series that provides an ongoing analysis of the changes made to Fairholme’s US stock portfolio on a quarterly basis. It is based on Fairholme’s (FAIRX) regulatory  filed on 02/17/2015. Please visit our  article for an idea on how his holdings have progressed over the years and our  highlighting the fund’s moves during Q3 2014.Berkowitz’s US stock portfolio increased marginally from $7.26B to $7.30B this quarter. The portfolio continues to be very concentrated with most of it invested in just five businesses. The largest three positions are American International Group, Bank of America, and Sears Holdings and together they account for 74.50% of the US long portfolio - the percentage increases to 83.95% when including the associated warrants.New stakes:Sears Canada (SRSC) and Sears WTS 28.41 Strike: These are small positions established this quarter as a result of Fairholme participating in two rights offerings from Sears Holdings. The SRSC rights offering distributed one subscription right for each share of Sears Holdings held and it allowed the purchase of 0.375643 shares of Sears Canada at $9.50 per share. The rights would have resulted in the purchase of around 10M shares but Berkowitz ended up with 40% more (oversubscription privilege). The Notes & WTS rights offering was for $625M in notes and 22M in warrants (strike $28.41 expiring in five years - 2019). Here again, the rights offering would have allowed the acquisition of around 6.1M warrants but Berkowitz ended up with 6.4M.Canadian Natural Resources (CNQ): CNQ is a minutely small 0.21% of the US long portfolio position established this quarter at prices between $27.31 and $38.84. The stock currently trades at around $30.Stake Disposals:BP plc (BP), Chesapeake Energy (CHK), Hartford Financial Services (HIG), HIG WTS 9.79 Strike, KKR & Co. (KKR), Lands End (LE), Lincoln National (LNC), New York Community Bancorp (NYCB), and Vodafone Group plc (VOD): These are minutely small positions (less than 0.5% of the portfolio each) eliminated this quarter. The BP, CHK, and NYCB positions were established last quarter and disposed of this quarter. LE was a small 1.14% of the US long portfolio position established in Q2 2014 as a result of its spin-off from Sears Holding that became effective in April 2014. The terms called for Sears’ shareholders to receive Lands’ End shares in the ratio 0.300795:1. Berkowitz received around 7.41M shares and he sold more than half in the quarter at prices between $25.86 and $34.87. Last quarter, the remaining position was almost eliminated at prices between $33 and $47.70.Stake Increases:Sears Holdings Corp (SHLD): SHLD is Berkowitz’s third largest position at 12% of the US long portfolio. The original stake was established in 2007 although the position size has fluctuated over the years. Last two years saw consistent buying and the share count has increased from around 16.8M shares to 26.55M shares. Q4 2013 saw a ~2.7% stake increase at prices between $44 and $66 and Q1 2014 saw another 15% stake increase at prices between $34 and $49. Last quarter saw a 3.38% increase while this quarter saw another 4.07% increase. The current stock price ($36.52) is far below Berkowitz’s average purchase price. The pattern of buying signifies a strong bullish bias. For investors attempting to follow Berkowitz, SHLD is a very good option to consider: he controls ~23% of the business.NOTE: The implied performance of his recent SHLD purchases by the prices quoted above is negatively skewed because of the effect of the Lands’ End spinoff in April 2014 and a couple of rights offerings in October 2014: a) Lands’ End (LE) was spun-off from SHLD whereby SHLD holders received LE shares at the ratio 0.300795:1, b) Sears Canada Rights: Sears Holdings Corporation distributed, at no charge, to holders of its outstanding common stock as at 5:00 p.m. on October 16, 2014, transferrable subscription rights entitling them to purchase common shares of Sears Canada Inc. held by Sears Holdings at a price of U.S. $9.50 per whole share, and c)  2019 unsecured debt & WTS Rights: Each subscription right consisted of a 8% senior unsecured note due 2019 and warrants to purchase common stock at a strike price of $28.41.Stake Decreases:American International Group (AIG) & AIG WTS 45 Strike: AIG is Berkowitz’s largest position at 39.37% of the US long portfolio (47.63% including warrants). The position size in the common was reduced by 6% in Q4 2013 at prices between $47.30 and $52.30. Q1 2014 saw another ~5% stake reduction at prices between $46.88 and $52.22. In Q2 2014, the warrants (Jan 2021 45 Strike, Yahoo Ticker - AIG-WT, Current Quote - $23.29) were marginally reduced while the common was reduced by ~8% at prices between $49.40 and $55.72 and the same pattern continued last quarter: 13.61% reduction in the common at prices between $52 and $56.33 and marginal reduction in the warrants. This quarter saw another ~15% reduction in the common at prices between $49.40 and $56.51. The stock currently trades at $55.01. Berkowitz is bullish on AIG, although the last several quarters have seen stake reductions.Bank of America (BAC) & WTS 13.30 Strike:  BAC is Berkowitz’s second largest position behind AIG at 24.41% of the US long portfolio. The stake was first purchased in 2010 and minor adjustments have since been made every quarter. Last two quarters have seen minor decreases in the common and marginal increases in the warrants (Jan 2019 13.30 Strike, Yahoo Ticker - BAC-WTA, Current Quote - $6.02) - the net effect was a small overall stake reduction. BAC traded between $14.98 and $18.13 during the period. It currently trades at $16.28. Berkowitz continues to be bullish on BAC.St Joe Companies (JOE) & Leucadia National (LUK): JOE and LUK are large 6.25% and 4.45% of the US long portfolio stakes respectively. LUK was reduced by 8% and JOE marginally in the last two quarters. The bulk of the JOE stake was purchased in the 2008-2009 timeframe and there have only been minor adjustments since. LUK is a very long-term holding that was built-up over several years. In Q1 2013, the position was increased by around 5% as a result of the all-stock merger deal between LUK and Jefferies. Berkowitz is very bullish on JOE & LUK. JOE trades at $17.48 and LUK at $23.86 currently. For investors attempting to follow Berkowitz, these are good options to consider for further research.Berkshire Hathaway (BRK.B) (BRK.A): BRK.B is a very small 0.54% of the US long portfolio position that was reduced marginally this quarter. As the position size is very small and the activity is minor, the selling does not indicate a clear change in bias.Kept Steady:BAC WTS 30.79 Strike, Citigroup Inc. (C), JP Morgan WTS 42.42 Strike, and Wells Fargo (WFC): These are minutely small positions kept steady this quarter.The spreadsheet below highlights changes to Fairholme’s US stock holdings in Q4 2014:Note: 12/8/2014 - I received feedback that the very small holdings also need to be shown in the spreadsheet. I have promised to incorporate this in my next iteration.Note: 2/17/2015 13G/13D/A’s: Sears Canada - 14.10M shares - 13.8%, AIG - 75.25M - 5.3%. Sears Canada is consistent with 13F while AIG is lower - the 13F count is 75.75 inclusive of WTS."