Investing

Bruce Berkowitz Has 97% of His Portfolio In These 3 Stocks

Chris MacDonald

Published: October 14, 2024 10:27 am

Bruce Berkowitz is among the most prominent hedge fund managers, known for his focus on concentration at his Fairholme Capital management fund. This concentrated strategy has been influenced by the investing principals of Benjamin Graham, and has led Mr. Berkowitz to take outsized positions on companies he feels is starkly undervalued in the current market. This sniper rifle-like approach has led to excellent performance over the long-term, with his fund notably outperforming the S&P 500 index by 529 percentage points over the past 23 years. Indeed, few investors can lay claim to such outsized performance over such a long period of time.

Again, much of this has to do with the concentration of positions within his portfolio. Currently, Berkowitz’s top three holdings make up more than 97% of his overall portfolio. That’s incredible concentration, the likes of which few investors have the gall to do (since a decline in one position can lead to very significant downside for the overall portfolio).

Here are Bruce Berkowitz’s top three holdings for investors who may be intrigued by his high-conviction bets. 

Key Points About This Article:

• Bruce Berkowitz could be among the most concentrated hedge fund mangers in the market, a strategy that’s worked over the long-term.
• Here are his three heavily overweight portfolio holdings, and why investors may want to take a deeper look at these stocks. 
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

St. Joe Co. (JOE)

St. Joe Co. (NYSE:JOE) is a real estate development and land management company based in Florida. The company is involved in the construction of real property in a variety of sectors including residential, commercial, and hospitality real estate development. 

Like a number of top real estate-related stocks, St. Joe has posted strong results over the past one and five years, up 10% and 143%, respectively, over these time frames. However, on a year-to-date basis, the stock has been flat, as a number of investors have soured on the impact higher interest rates could have on the property development market. 

Still, structural tailwinds from growing demand for housing and tourism in the key regions St. Joe operates in should continue to buoy this company over time. And the developer’s Q1 2024 results showed strong performance on most fronts, with a 20% increase in revenue reported compared to the same period in 2023. This number was accompanied by operating income growth of 42% and net income attributable to the company increasing by 34%. This positive trend reflects strong performance in various segments despite key challenges in real estate sales overall.

Now, the company did see revenue growth decrease 13% on a year-over-year basis in Q2, attributed primarily to a 51% decrease in real estate revenue (offset largely by a 38% surge in hospitality revenue). So, depending on how you want to view this stock, it could be an intriguing option at current levels.

That said, at around 48-times earnings, this is a stock I think could be a little riskier than the average real estate play right now. I have no doubt in my mind Berkowitz knows what he’s doing, but recent numbers do provide some reason for pause right now.

Enterprise Product Partners (EPD)

Enterprise Products Partners (NYSE:EPD) is an intriguing company in how it’s set up and what the company does. A master limited partnership (MLP), Enterprise Products Partners specializes in midstream energy services. In layman’s terms, that means the company focuses on the transportation and processing of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals.

As a midstream energy player, EPD stock is certainly a compelling way to play this increasingly volatile space. And from a valuation perspective, there’s a lot to like about the company’s multiple of just 11-times earnings, as well as its relatively high 7.1% dividend yield. These metrics have to be key factors underpinning Berkowitz’s core position in this top oil & gas name. 

Recent Q1 2024 results paint a rather rosy picture for investors, with the company reporting a gross profit margin of 13.5%. This number alone reflects the Enterprise Products Partners’ increased focus on creating efficiencies and employing cost management initiatives amid market fluctuations in energy prices. The company aims to maintain high EBITDA margins moving forward, as it relies on strong competitive positioning within its industry. 

To be fair, this is an energy stock I haven’t looked at before, and is one I intend on diving into deeper in future pieces. But at first glance, it’s a top Berkowitz holding I think deserves increased scrutiny from investors due to its size and relevance to this particular portfolio. 

Bank OZK (OZK)

Bank OZK (NASDAQ:OZK) is among the lesser-known online banks in the market. I’ve focused on other similar names in the past. But this $5 billion market cap company is one I think is deserving of a deeper look, particularly as it rounds out Berkowitz’s top three holdings in his core portfolio.

The company’s $5 billion market capitalization contrasts well with more than $2.6 billion in cash, nearly $30 billion in deposits, and just $847 million in debt. Additionally, the company posted record profits in Q2, bringing in $173.5 million of earnings (or $1.52 per share), up 3% year-over-year. The lender’s net interest income also hit a record $388 million, signaling to investors that the company’s new secondary mortgage lending business is well-positioned for future growth. That goes double for those looking to bet on companies that could benefit from lower interest rates over time. 

This Little Rock Arkansas-based company has seen its share price decline by more than 25% this year, which could be enticing to some value investors. Trading at just 7-times earnings with a dividend yield that’s meaningful (at around 3.8%), this is a stock that could see much more upside if its longer-term trend holds intact. Importantly, Bank OZK currently only pays out around 26% of its earnings to dividend payments, meaning there could be plenty of room for dividend growth, should earnings continue to grow over time. 

In Q2, Berkowitz amplified his bets on the company, growing his position by 69%. Thus, this is among his most recent adds, and one I think could be most compelling for those investors out there with a value tilt.