(Story updated to add that Mohawk Industries has invested in a China tile maker.)
) -- What would a pair of veteran mutual fund managers buy if given a clean slate?
The $130 million
, launched a year ago by former
managers Larry Pitkowsky and Keith Trauner contains the answer.
These former Berkowitz acolytes' fund holds six of their favorites from when they were at Fairholme, where they were at various times analysts, fund managers and outside advisers from roughly 1999 to 2010. During that time, the fund had the large-value category's best return -- 13.6% versus 3.6% for its rivals, according to Morningstar.
Those six stocks are: Warren Buffett's
, retailing giant
, the Bermuda-based insurance holding firm
White Mountains Insurance
, investment banker
, gold miner
and flooring manufacturer
Other than that, the two are intent on going their own way. The new stocks in the 18-position GoodHaven portfolio range from mega-cap industry leaders such as
, to small-cap relative unknowns such as
, a maker of aluminum products used in doors and windows.
Morningstar analyst Kevin McDevitt says Pitkowsky and Trauner "follow a similar go-anywhere value approach" to that of Fairholme, which entails "buying securities across the capital structure and of any market cap."
An example of that is the fund's biggest bet,
Spectrum Brands Holdings
, at 11% of the fund. It is a diversified consumer products company that emerged from bankruptcy in 2009.
"Trauner and Pitkowsky believe that it will pay off a large chunk of its high-cost debt over the next year, creating substantial free cash flow," McDevitt said in his review of the fund.
The fund's second-largest holding, at 8%, is another out-of-favor stock, computer conglomerate
, which is in the midst of trying to reinvent itself in a rapidly changing marketplace.
The GoodHaven fund is up 14% this year, putting it in the top 20% of funds in the large value category, as tracked by Morningstar. The
is up 13%.
In contrast, the Fairholme Fund, with $8.2 billion in assets, has risen 30% this year versus the 13% for its fund category, putting it in the top 1% of those funds. It's also been the top-performing actively managed domestic stock fund of all categories this year. But if you look one year out, the results show a 10% decline, due to Fairholme's horrendous 2011, when the fund lost 32%, primarily due to too-early bets on the recovery of financials, a wager that is paying off now.
Here are 10 of the 18 stocks in the GoodHaven fund portfolio in inverse order of their return this year:
Hewlett-Packard, with a market value of $47 billion, is one of the oldest providers of hardware and software, and makes and sells everything from PCs to big data storage, and huge business and government networked systems. Its business services generally require all-inclusive long-term contracts that make it expensive for the customer to migrate to another vendor. The company has a new CEO who is trying to refocus the company, which has lost market share in several key areas over the past few years.
This is the fund's second-largest holding at 8% of the portfolio. Its shares are down 7% this year and have a three-year, average annual decline of 9%. It shares have a 2% dividend yield. Analysts give its shares 10 "buy" ratings, two "buy/holds," 16 "holds," three "weak holds," and two "sells," according to a survey of analysts by S&P. S&P has it rated "hold" and says S&P says it thinks the needed changes at will be "slow to materialize, given the number of problems facing the company, including a lackluster demand environment." It's expected to earn $4.04 per share this year.
Google, with a market value of $211 billion, manages an Internet search engine that generates revenue when users click or view advertising related.
Its shares are up 0.5% this year and have a three-year, average annual return of 22.5%. Analysts give its shares 20"buy" ratings, 13 "buy/holds," and eight "holds," according to a survey of analysts by S&P. Despite all the positive ratings, S&P, which has it rated "hold," said Google's proposed purchase of Motorola Mobility "will not necessarily protect Android from IP (Internet protocol)-related attacks, and will weaken the (company's) growth, margins and balance sheet."
Mohawk, with a market value of $4.6 billion, is a leading flooring products producer for the residential and commercial construction industry. The company is the second-largest carpet and rug manufacturer in the U.S., and among the largest producers of ceramic tile, natural stone, laminate, and hardwood flooring products worldwide.
Its shares are up 11% this year and have a three-year, average annual return of 25%. Analysts give its shares two "buy" ratings, one "buy/hold," ten "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. S&P itself has it rated "sell," based on a view that its operating environment remains weak. While we believe the company will gain global market share in all three product categories, we expect the entire industry to post low single-digit sales growth in 2012, on still weak customer demand." Mohawk said this week that it invested in a joint venture with China's Sanfi Ceramics in order to get into the world's largest ceramic tile market. Ceramic tiles are estimated to make up 70% of all flooring sold in China, and the market is expected to grow by 10% or more per year, Mohawk said.
Republic, with a market value of $11 billion, is the second-largest provider of solid waste management services in the U.S. The company is a product of the $5 billion merger of Allied Waste and Republic Services in 2008.
Its shares are up 11% this year and have a three-year, average annual return of 23%. Analysts give its shares four "buy" ratings, six "buy/holds," and two "holds," according to a survey of analysts by S&P. Morningstar has a $35 "fair value" estimate on its shares, which is a 13% premium to the current price.
Quanex, with a market value of $641 million, manufactures steel and aluminum products primarily for use in the automotive and building products industries, where they are used to make trim or windows and doors.
Its shares are up 15% this year and have a three-year, average annual return of 26%. Analysts give its shares one "buy" rating, one "buy/hold," and six "holds," according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate that it will earn 25 cents per share and 73 cents per share in 2013.
Spectrum Brands Holdings
Spectrum Brands, with a market value of $2 billion, is a consumer company with product lines that include: household batteries, pet supplies, electric shavers, portable lighting, and home and garden products. Its brands include: Rayovac, Remington, and Black & Decker. Harbinger Capital owns about a 54% stake in the company.
Its shares are up 24% this year. Analysts give its shares one "buy" rating, two "buy/holds," and one "hold," according to a survey of analysts by S&P. S&P doesn't have it rated. It's expected to earn $2.49 per share this year and that earnings will grow 11% in 2013.
Mueller, with a market value of $1.8 billion, manufactures brass, bronze, copper, plastic, and aluminum products and operates natural resources businesses. Its products include tubes and fittings for the air conditioning, refrigeration, plumbing, and heating industries.
Its shares are up 25% this year and have a three-year, average annual return of 28%. Analysts give its shares one "hold," rating, according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate it will earn $2.35 per share and that that will grow by 11%, to $2.60, in 2013.
Microsoft, with a market value of $273 billion, develops the Windows PC operating system, the Office suite of productivity software, and enterprise server products such as Windows Server and SQL Server. It also owns the Xbox 360 video game console, Bing Internet search, business software, and software for mobile devices.
Its shares are up 26% this year and have a three-year, average annual return of 22%. Analysts give its shares 14 "buy" ratings, eight "buy/holds," 13 "holds," and one "sell," according to a survey of analysts by S&P. S&P has it rated "buy," with a $33 price target, only a slight premium to the current price and says the rating is "based mostly on valuation. The shares are trading at 9.4 times our fiscal year 2013 earnings per share estimate, a significant discount to the market and peers." It adds that "the eventual launch of Windows 8, could finally help (the company) penetrate the mobile device category."
Jefferies, with a market value of $4 billion, is a full-service investment bank primarily serving growing and middle-market companies.
Its shares are up 42% this year and have a three-year, average annual return of 10%. Analysts give its shares one "buy/hold," rating, five "holds," and one "weak hold," according to a survey of analysts by S&P. S&P upgraded it to "hold," from "sell" on March 20, after the company posted first quarter earnings of 33 cents per share, above S&P's 24 cent estimate. Analysts expect it to earn $1.33 per share in fiscal year 2012, and that that will grow by 17% to $1.55 in 2013.
Federated, with a market value of $2.3 billion, is a provider of asset management services for institutional and individual investors.
Its shares are up 56% this year and have a three-year, average annual return of 7%. Analysts give its shares eight "holds," two "weak holds," and three "sells," according to a survey of analysts by S&P. As a big manager of money market funds, with slightly more than $285 billion in such assets at the end of 2011, historically low interest rates have made it difficult for Federated to maintain positive yields on these funds and industry-wide, investors have also moved to higher-yielding assets elsewhere.
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