13Fs: High-Intensity Honchos Slow To Shift Gears

Even Carl Icahn and Warren Buffett, whose portfolio turnover normally runs low, waxed proactive past couple of months. And why not? The market bottomed end of March and then sprinted. Carl exited Freeport-McMoRan FCX , my copper and gold play which remains buoyant.

He’s still wedded to energy in Cheniere Energy and Occidental OXY Petroleum. Both need much higher oil quotes, even north of $50 a barrel to lift off the mid-teens level. Occidental traded at $50 a year ago.

Buffett still perplexes me (see last week’s column). Warren exited from a $5 billion play in airlines and sold Occidental Petroleum. I regard Buffett’s high position in bank stocks as death row. Berkshire’s huge position in Wells Fargo WFC stands cut in half by the market, barely off its 52-week low of $22.

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Checking other high-profile banks like Citigroup C and JPMorgan Chase JPM you find enormous performance gaps this year. JPMorgan’s December peak was $140, now ticking below par. Citigroup reached $80 but at its March low traded well under $40. Valuation disparity between these two is eye-catching. Citigroup trades over a 30% discount to book value and at 10 times normalized earnings power. JPMorgan sells at a 20% premium over book and above 13 times my projection of earnings this year of $7.50 a share. You would think these two properties were in different businesses, but not so.

Currently, Berkshire’s two largest bank holdings are Bank of America BAC and Wells Fargo. Bank of America was a near basket case in the 2008 – 2009 meltdown. Buffett threw them a lifeline and took back billions in options grants that made Berkshire several billion. Same goes for Goldman Sachs GS where he exercised options and just sold out the stock. In my book, Buffett is a better investment banker than money manager.

Bill Ackman, Pershing Square’s honcho, exited his Berkshire position. Berkshire’s huge overconcentration in financials is hard to rationalize. It happened over decades, now at $52 billion, but overshadowed by the homerun in Apple AAPL , worth some $112 billion currently.

No problem betting on banks today as a macro play on reflation, but so far it’s a nonstarter. Let’s see whether loan-loss reserves prove adequate. If not, subtract 20% from bank stock valuation. Before you buy a bank stock check what happened to it in the 2008 – 2009 financial meltdown. Citigroup traded near zero before its reverse stock split.

JPMorgan touchdown under $20, and didn’t recover to its previous $60 high in 2000 until 2015. Gimme a break! Apple past five years has whooshed over 350%. Curiously, sorting through a couple of dozen 13Fs, nobody pounced on Apple like Buffett did. What are all you guys doing in Occidental Petroleum? Carl Icahn sold out his major position in Apple years ago.

Before looking at specific portfolio holdings, check the manager’s static ratio which reveals turnover activity. Appaloosa Management’s static ratio was zero, a full turnover. Now, it’s pretty much a Nasdaq NDAQ 100 Index tech portfolio. The usual suspects – Microsoft MSFT , Facebook and Amazon AMZN . Investors could avoid any management fee content herein, just buying the Nasdaq 100 Index.

Same goes for Coatue Management which at yearend also ran a near-zero static ratio. Neither house owned Apple. Walt Disney DIS popped up as a 9% holding. This is a great “look over the valley” piece of paper, but I’m not ready for it as yet. Same goes for Boeing BA .

T. Rowe Price Associate TROW s surprised me, also with a near-zero static ratio. This is a diversified high-tech portfolio. Apple’s at 2.6%, sandwiched between Facebook and Alphabet. Tiger Global Management, over $25 billion in assets, but a very-high static ratio of 70%, coasts along with its mainly tech-house portfolio, but no Apple as yet.

Berkshire’s static ratio for the quarter stayed relatively high at 65.9%. Portfolio eliminations ran at a high 22.7% vs. buys of 9%. Berkshire still is swimming in cash, some $140 billion. Why? It sold out some 60% of its portfolio. Why so? Mistakes, like airlines got eliminated.

Pershing Square continues to run a relatively-high static ratio, near 60%, Berkshire, a 14% holding, was eliminated. Lowe’s LOW , a huge winner is now a 22% position, up from 15.7%. I’m impressed. Bill Ackman added to positions in Starbucks SBUX , Hilton International, Howard Hughes and Lowe’s, a gutsy macro call on a reviving economic setting. I like the way Ackman runs money. The portfolio is conceptually coherent and aggressively concentrated in several one-off kind of stocks. The right way to go to the moon.

Walt Disney is popping up more often. A post-Covid-19 play, is top position in Third Point, edging out Amazon. Baxter International BAX was numero uno, now cut back from 16% of the list to a 4.7% position. This is a less-defensive portfolio but not tech laden and doesn’t make a strong statement – pro-recovery but maybe not enough.

The Duquesne Family Office portfolio looks like mine with Microsoft numero uno, followed by Amazon. JPMorgan Chase 4.6% of the portfolio, still leaves me cold. Static ratio is low at 10%, but this list looks like it fully captured the 2nd quarter’s zippy recovery.

In Citadel, a $68 billion house, Apple pops up, a 1% position, but Amazon is at 3%. I see T-Mobile here, my favorite media property. Again, almost a total portfolio remake from yearend, but hasn’t gone far enough if macro recovery kicks in next next quarter or two.

When I step back from these portfolios, my feeling is many high-intensity players don’t believe in a more-zippy market lead by tech and internet houses. Almost all missed Apple and coulda had more Amazon. Facebook is a light, and not enough Microsoft, anywhere.

Hardly anyone is carrying large-capitalization energy plays, or drug houses, a good call, but why allergic to oil-service stocks like Halliburton HAL which bottomed at $4.25 and now ticks at $16? Likewise, Freeport-McMoRan more than doubled from its March low under $6. Non-durables stocks like Coca-Cola KO and Proctor & Gamble PG did rally but not eye-catching.

Overall, I’m surprised that so few money managers pushed their chips into the pot. Consider, the Nasdaq 100 Index powered to a 40% gain for the quarter. Incidentally, these houses should be rated against Nasdaq, not the S&P 500. Simply, they mainly run compressed portfolios with stocks of above-average volatility. I’m surprised limited partners ignore this issue.

Anyone who missed big tech in the June quarter should be called on the carpet for an explanation.

Sosnoff and / or his managed accounts own: Freeport-McMoRan, Wells Fargo preferreds, Citigroup bonds, Apple, Microsoft, Facebook, Amazon, Walt Disney, T-Mobile bonds and Halliburton.

msosnoff@gmail.com

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