BALTIMORE (Stockpickr) -- When it comes to stock pickers, it's hard to match the success that's been achieved by Bruce Berkowitz and his Fairholme (FAIRX) mutual fund. Fairholme produced 25.5% in 2010, outperforming all but one of the mutual funds in the large-value category, according to research from Morningstar. The outsized gains are nothing new to Fairholme -- the stock's performance has ranked it in the top 1% of funds for the past 10 years as well.
Now, though, that long history of outperformance begs a very serious question: What are Berkowitz & Co. buying for 2011?
To answer that, we're taking a look at the firm's most recent SEC filings to analyze some of the
One of the most unique aspects about Fairholme is the flexibility that the fund's charter provides to Berkowitz and partner Charlie Fernandez in the ability to invest outside of traditional equities. As a result, the fund is free to invest in special situations that require the scale of an institutional investor in return for potentially outsized gains. Such was the case with Fairholme's largest newly initiated position,
General Growth Properties
Late last year, Fairholme and two other firms agreed to help recapitalize GGP, a beleaguered mall REIT that had been hit hard by fallout from the recession. As falling real estate prices smashed the value of GGP's offerings and tumbling consumer spending did the same for sales at GGP's biggest lessees, the company was struggling to get its head above water. The recapitalization efforts in GGP meant Fairholme's committing $2.8 billion to the firm in exchange for a mammoth equity stake in the company as it emerged from bankruptcy.
The bet is already paying off for Fairholme shareholders; in January, Fairholme agreed to sell 113 million of its shares of GGP to Brookfield Asset Management, another of the firms involved in the GGP recapitalization deal. That comes on top of the capital gains that the firm is seeing on its remaining shares.
Other major holders of GGP as of the most-recent period include
U.S. mobile carriers are another big focus of Fairholme's dollars right now. The fund initiated new positions in
in the most recent quarter. The big news on the mobile front is
, a deal that would make AT&T the top domestic carrier by far and significantly increase the company's ability to wield leverage over suppliers, consumers and competitors. It'll be interesting to see whether the merger is met with regulatory approval.
Of course, while Verizon Wireless is still the No. 1 domestic wireless carrier, not all of those customers are attributable to Verizon itself; the company shares ownership of its mobile subsidiary with
, a distinction that still makes AT&T the biggest publicly traded U.S. mobile carrier even before the merger with T-Mobile.
That said, Verizon's recent addition of the iPhone to its handset offerings should prove to be a big deal for the company, especially as it attempts to compete with a bigger AT&T. The phone had previously been a major catalyst for growth for AT&T (with more than a quarter of the company's customers using iPhones), and now that it's available on Verizon's network, the amount of AT&T's customer attrition to Verizon has yet to be seen.
Not surprisingly, these two competitors share a significant number of traits. Beyond their respective mobile networks (which continue to receive significant capital investments), each firm still owns landline telephone businesses, which are becoming an increasingly less important element of their bottom lines. Where Verizon stands out is in its FiOS service, which despite massive infrastructure costs stands to help diversify the firm's interests away from the mobile business.
Even so, if the proposed merger between AT&T and T-Mobile goes through, investors would be dealing with a whole different animal. It'll be important to watch how the deal evolves. Fairholme owned 7.4 million shares of Verizon and 9.4 million shares of AT&T as of its latest quarterly filing.
AT&T is also one of the top holdings
, while Verizon shows up in
as of the most-recent period. Verizon is also one of TheStreet Ratings'
, while AT&T is one of the
Historically, Fairholme has been known for making large, prescient bets on financial stocks. If that track record is any indication, investors would do well to watch
( STD), the Spanish bank that boasts significant operations throughout Europe and Latin America.
Santander has kicked 2011 off to a strong start already with year-to-date gains of 12.5%, a fact that should come as little surprise given the firm's exposure to some of the most attractive markets in Latin America through its
subsidiary. Still, exposure to less enticing markets back home in Europe do make this stock at least a bit difficult to watch. With a Euro-denominated balance sheet, forex fluctuations can be to blame for significant swings in Santander's value here on the NYSE.
That said, Santander's sheer scale and admirable positioning should help the firm continue to do well in spite of its few detractors. A 4.74 million share bet from Fairholme are a good endorsement as well.
Banco Santander is one of
To see the rest of Fairholme's plays, check out the
-- Written by Jonas Elmerraji in Baltimore.
Follow Stockpickr on
and become a fan on
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.