10 Hated Stocks Loved by Value-Guru Berkowitz

BOSTON (TheStreet) -- Bruce Berkowitz, Morningstar's U.S. stock manager of 2009, has half of his mutual fund's assets in what he calls "hated financial-services and real-estate-related companies." A value-stock disciple, Berkowitz is greedy when others are fearful. The investor runs Fairholme Capital, a mutual fund company with only two funds: the flagship Fairholme Fund (FAIRX) and the Fairholme Focused Income Fund (FOCIX). Fairholme Fund has delivered a return of 255% since its 2000 inception, compared with a loss of 15% for the S&P 500 Index. Berkowitz has delivered outstanding results, in up and down years for the stock market, by holding a concentrated equity portfolio and a cash coffer, with about 20% of assets in short-maturity corporate debt and cash equivalents. The value-conscious Berkowitz concedes that timing is difficult, so he always has cash on hand to scoop up securities under duress. Fairholme's mantra: Ignore the crowd. At the end of the latest quarter, Berkowitz held 23 securities in his equity portfolio. Many of his value picks are laggards, such as AIG AIG and Sears Holdings SHLD. Here are 10 cheap, unloved stocks that Berkowitz owns. They've performed miserably over a three-year span and analysts mostly pan them. Still, they may have tremendous potential. The shares are ordered by book-value multiple, from cheap to cheapest. 10. St. Joe Co. JOE is a real-estate development company in Florida, with 580,000 acres in the northwest region of the state. It manages timberland operations in rural areas and works with residential, commercial and resort planners. Its second-quarter loss narrowed 81% to $8.6 million, or 9 cents a share, as revenue fell 44% to $22 million. The operating margin remained in negative territory. St. Joe's stock has fallen 12% a year since 2007 as revenue dropped 38% a year. It trades at a book value multiple of 2.6, an 8% premium to its peer average. Raymond James RJF offers a target of $32, implying 27% of upside. Fairholme owns 29% of outstanding shares. 9. RSC Holdings RRR rents construction and industrial equipment at 465 locations in the U.S. and Canada. Its second-quarter loss nearly doubled to $22 million, or 21 cents a share, as revenue declined 7.8% to $301 million. The operating margin tightened from 7.4% to 4.4%. RSC shares sell for a forward earnings multiple of 35, a 116% premium to the industry average. A sales multiple of 0.6 and cash flow multiple of 2.3 reflect discounts of 68% and 78% to industry averages. The stock has fallen 26% a year since 2007. Of analysts following RSC, five rate its stock "buy", five rate it "hold" and one ranks it "sell." A median price target of $11 suggests a return of 53%. To read the rest, head over to TheStreet.com