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Fairholme Fund Exited 4 Positions in 2nd Quarter

- By David Goodloe

Fairholme Fund (Trades, Portfolio) exited its positions in four stocks in the second quarter.

The fund sold its 6,266,800-share stake in NOW Inc. (DNOW), a Houston-based distributor of products to the energy and industrial markets, for an average price of $17.55 per share. The divestiture had a -5.68% impact on Fairholme's portfolio.


First Eagle Investment (Trades, Portfolio) is NOW's leading shareholder among the gurus with a stake of 8,385,567 shares. The stake is 7.81% of NOW's outstanding shares and 0.38% of First Eagle's total assets.

NOW has a price-book (P/B) ratio of 1.6 and a price-sales (P/S) ratio of 0.8. GuruFocus gives NOW a Financial Strength rating of 7/10 and a Profitability and Growth rating of 5/10 with return on equity (ROE) of -33.54% that is lower than 80% of the companies in the Global Oil & Gas Equipment & Services industry and return on assets (ROA) of -25.60% that is lower than 89% of the companies in that industry.



NOW sold for $19.93 per share Thursday. The DCF Calculator gives NOW a fair value of $-55.54.

NOW reported its quarterly earnings Wednesday, exceeding analysts' expectations for earnings per share by 6 cents.

The fund sold its 4,720,500-share stake in MRC Global Inc. (MRC), a Houston-based distributor of pipes, fittings and valves, for an average price of $13.75 per share. The transaction had a -3.16% impact on Fairholme's portfolio.

Tweedy Browne (Trades, Portfolio) is MRC Global's leading shareholder among the gurus with a stake of 5,731,567 shares. The stake is 5.81% of MRC's outstanding shares and 2.07% of Tweedy Browne (Trades, Portfolio)'s total assets.

MRC Global has a P/B of 2.6 and a P/S of 0.4. GuruFocus gives MRC Global a Financial Strength rating of 5/10 and a Profitability and Growth rating of 4/10 with ROE of -38.56% that is lower than 78% of the companies in the Global Oil & Gas Equipment & Services industry and ROA of -14.38% that is lower than 71% of the companies in that industry.



MRC Global sold for $13.62 per share Thursday. The DCF Calculator gives MRC Global a fair value of $-44.84.

MRC's second-quarter numbers were not encouraging for investors. The company reported a loss of 24 cents per share; analysts expected a loss of 14 cents per share. The company had diluted earnings of 15 cents per share a year ago.

The fund divested itself of a 22,934,100-share stake in Federal Home Loan Mortgage Corp. (FMCC), a government-sponsored financial services company commonly known as "Freddie Mac" and based in Tysons Corner, Virginia, for an average price of $1.58 per share. The deal had a -2.13% impact on Fairholme's portfolio.

Ruane Cunniff (Trades, Portfolio) is Freddie Mac's only shareholder among the gurus with a stake of 1.5 million shares. The stake is 0.23% of Freddie Mac's outstanding shares and 0.02% of Ruane Cunniff (Trades, Portfolio)'s total assets. The stake is new to Ruane Cunniff (Trades, Portfolio)'s portfolio.

Freddie Mac has a P/S of 1.11. GuruFocus gives Freddie Mac a Financial Strength of 5/10 and a Profitability and Growth rating of 6/10 with ROE of -13.41% that is lower than 95% of the companies in the Global Specialty Finance industry and ROA of 0.12% that is lower than 83% of the companies in that industry.



Freddie Mac sold for $1.7 per share Thursday. The DCF Calculator gives Freddie Mac a fair value of $-1.18.

The guru sold its 12,658,400-share stake in Federal National Mortgage Association (FNMA), a Washington-based government-sponsored financial services company known as "Fannie Mae," for an average price of $1.7 per share. The divestiture had a -1.22% impact on Fairholme's portfolio.

Ruane Cunniff (Trades, Portfolio) is Fannie Mae's only shareholder among the gurus with a stake of 1,651,820 shares. The stake is 0.14% of Fannie Mae's outstanding shares and 0.02% of Ruane Cunniff (Trades, Portfolio)'s total assets. The stake in Fannie Mae also is new to Ruane Cunniff (Trades, Portfolio)'s portfolio.

Fannie Mae has a P/S of 0.5. GuruFocus gives Fannie Mae a Financial Strength rating of 4/10 and a Profitability and Growth rating of 5/10 with ROE of -3.46% that is lower than 94% of the companies in the Global Specialty Finance industry and ROA of 0.32% that is lower than 81% of the companies in that industry.



Fannie Mae sold for $1.9 per share Thursday. The DCF Calculator gives Fannie Mae a fair value of -21 cents.

Disclosure: I own no stocks mentioned in this article.

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This article first appeared on GuruFocus.