Bruce Berkowitz (Trades, Portfolio), leader of Fairholme Capital Management, revealed earlier this week he curbed his investment in The St. Joe Co. (JOE, Financial) by 3.28%.
Believing that a more diversified portfolio leads to a more average performance, the guru’s Miami-based firm concentrates its investments in a relatively small number of companies. He applies Benjamin Graham’s strategy when selecting stocks, seeking companies that have solid management, generate high free cash flows and are trading at a deep discount to intrinsic value.
According to GuruFocus Real-Time Picks, a Premium feature based on 13D, 13G and Form 4 filings, Berkowitz sold 791,500 shares of the real estate company on July 28. The transaction had an impact of -4.22% on the equity portfolio. The stock traded for an average price of $64.51 per share on the day of the transaction.
He now holds 23.35 million shares, which accounted for 83.08% of its equity portfolio as of the first-quarter NPORT-P filing. It is also his largest holding. GuruFocus estimates Berkowitz has gained 148.71% on the long-held investment.
Investors should be aware that, just like 13F reports, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these filings can provide valuable information.
The reduction is likely due to profit-taking as opposed to a change in the investment thesis since, despite a recent dip, the stock has gained more than 50% year to date.
Further, in his semi-annual 2023 letter, Berkowitz lauded the company’s prospects.
“Mark Twain was right when he said ‘buy land, they’re not making it anymore,’” Berkowitz wrote. “St. Joe’s land and entitlements are about or surround one of the hottest residential markets in Florida, Scenic Highway 30A on the Gulf of Mexico. The company’s earnings per share in the first half of this year increased by 48% from the first half of last year - with no extraordinary profits and while finishing five new hotel complexes.”
About St. Joe
Founded in 1936, St. Joe is a real estate developer and asset manager. Headquartered in Panama City Beach, Florida, the company is organized in four segments: Hospitality, Residential, Commercial and Other.
The hospitality and residential businesses contributed the majority of the company’s 2022 revenue at a combined 75.3%.
Earnings review
On July 26, St. Joe reported its second-quarter and first-half 2023 results.
For the three months ended June 30, the company posted an 88% increase in revenue to $128.10 million, driven by strong performances in its real estate, hospitality and leasing divisions. Net income grew 104% from the prior-year quarter to $34.70 million, or earnings of 60 cents per share. Ebitda also climbed 99% from a year ago to $59.70 million.
For the first six months of the year, St. Joe recorded a 51% increase in revenue to $201.10 million, while net income rose 48% to $45.10 million and Ebitda gained 53% to $84.10 million.
In a statement, President and CEO Jorge Gonzalez added that the company sold 300 home sites during the quarter as well as gained 150 new contracts and completed 164 home sales through its Latitude Margaritaville Watersound joint venture.
“This quarter demonstrates what we have been saying all along, which is that housing demand in our region is solid and our quarter-to-quarter homesite sales and margin results depend more on the timing of completion of development and product mix,” he said. “The biggest driver to housing demand in our region is the net migration that is occurring from a wider range of geographies where individuals and families are looking for a high quality of life, safety, security, natural beauty and great schools.”
Going forward, he said St. Joe will “continue to focus on long-term value creation.”
Valuation
St. Joe has a $3.56 billion market cap; the stock was trading around $61.03 on Thursday with a price-earnings ratio of 41.51, a price-book ratio of 5.36 and a price-sales ratio of 11.11.
The GF Value Line suggests the stock is fairly valued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 88 out of 100, the GF Score indicates the company has good outperformance potential on the back of high profitability, growth and momentum ranks. The ratings for financial strength and value are more moderate.
Guru interest
Of the gurus invested in St. Joe, Berkowitz by far has the largest stake with 40% of its outstanding shares.
As of the first quarter, the stock was also being held by Mario Gabelli (Trades, Portfolio), Murray Stahl (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Portfolio composition and performance
Berkowitz’s $1.21 billion equity portfolio, which is composed of 11 stocks, is largely invested in the real estate sector. The energy, basic materials, financial services and health care spaces have much smaller representations.
Enterprise Products Partners LP (EPD, Financial), Commercial Metals Co. (CMC, Financial), Berkshire Hathaway Inc. (BRK.B, Financial) and Citigroup Inc. (C, Financial) round out the rest of his top five holdings.
Fairholme returned -20.49% in 2022, slightly underperforming the S&P 500’s return of -18.11%.
