Recently, Barron’s featured a new deep value fund with $385 million in assets under management. According to Morningstar, this fund has gained 19.5% in 2012, while the S&P 500 moved up 16%. Since the beginning of the year, while the S&P 500 increased 10.61%, the fund returned 12.5%. This fund is known as GoodHaven Fund (MUTF:GOODX), managed by two investment managers, Larry Pitkowsky and Keith Trauner, who had worked for Bruce Berkowitz in his Fairholme Fund (MUTF:FAIRX) fund.
Their ex-employer invested heavily in Financials
Bruce Berkowitz runs quite a concentrated portfolio. He invested heavily in Financials, including American International Group Inc (NYSE:AIG), accounting for 43.6% of Berkowitz’s total portfolio. He concentrated a great deal on AIG, as he believed that a business like AIG should be trading at a multiple of book value. At the current price of around $39 per share, AIG is trading at only 60% of its current book value.
Moreover, AIG has been active in quitting its non-core businesses by selling Asian life insurer AIA and a 90% stake in IFLC, an aircraft leasing business. Berkowitz mentioned that American International Group Inc (NYSE:AIG) should be worth at least $70 per share. GoodHaven Fund (MUTF:GOODX) also runs a concentrated portfolio, but not as concentrated as Fairholme. Its two biggest holdings are Spectrum Brands Holdings, Inc. (NYSE:SPB) and Hewlett-Packard Company (NYSE:HPQ).
GoodHaven’s top position
GoodHaven owned around 546,000 shares of Spectrum Brands, accounting for 11.68% of its total portfolio. Spectrum Brands Holdings is a diversified global branded consumer products company, producing and distributing herbicides, insecticides, specialty pet supplies, other small household appliances, and personal care products, selling to around 140 countries.
The company has three main business segments: Global Batteries & Appliances, Global Pet Supplies, and Home and Garden Business. The majority of its revenue, $2.25 billion, or 69.2% of total 2012 revenue, was generated from the Global Batteries & Appliances segment. Global Pet Supplies ranked second with $615.5 million in sales, while Home and Garden contributed around $397 million in revenue in 2012.
Spectrum Brands Holdings, Inc. (NYSE:SPB) is a cash cow, with a consistent positive cash flow. Its operating cash flow increased from $227 million in 2011 to $255 million in 2012, while free cash flow rose from $191 million to $208 million during the past year. Even though Pitkowsky and Trauner thought that Spectrum Brands could reach more than $75 per share in two or three years, I do not believe Spectrum is a bargain now. At $57 per share, this $3 billion business is valued at as high as 13.5 times EV/EBITDA.