St. Joe: Florida's Panhandle Potential
10/11/2017 5:00 am EST
Focus: REAL ESTATE
In the aftermath of Hurricane Irma, it’s ironic that this month’s Smart Money Masters recommendation, The St. Joe Company (JOE), is a bet on Florida real estate, says Nicholas Vardy, editor of Smart Money Masters.
Specifically, St. Joe is a bet on the growth and development of northwestern Florida. St. Joe is also the largest position in Bruce Berkowitz’s Fairholme Fund (FAIRX). Berkowitz has invested a whopping 48.67% of the Fairholme Fund in the company. That’s a daring move, even for a committed contrarian.
The harsh truth is that St. Joe has been a dud investment over the past decade. After hitting a high of $81.54 in June 2005, shares of St. Joe have fallen sharply to around $18.55. That’s the same level the stock traded at in February 2009, and a level that it first hit in January 1994.
Yet, there are reasons that 2017 may be the year in which the company’s stock price may begin a sustained recovery. Like many of the other Smart Money Masters we follow, Berkowitz is a value investor.
Berkowitz’s ideal investment is a company that has exceptional management, generates free cash flow and is “ridiculously cheap.”
Berkowitz has said that if he could only invest in one of his positions, St. Joe would be it. Putting his money where his mouth is, Berkowitz raised his stake in St. Joe on July 14 by 1.37% when he bought 343,428 shares for $18.55 per share.
The St. Joe Company owns over 120,000 acres across the Florida Panhandle Region from the international airport (ECP) to the Gulf of Mexico in Florida. St. Joe has the rights to build 120,000 homes and millions of square feet of commercial resort and club properties—at zero land costs.
Since Berkowitz became a shareholder in late 2010, St. Joe has streamlined real estate and forestry operations by 50%, reduced corporate expenses by 35% and sold off 380,000 acres of non-strategic land.
Make no mistake: St. Joe is a bet on the future of northwest Florida. The potential increase in the value of St. Joe’s real estate holdings provides the biggest upside potential for its shareholders.
The newest U.S. international airport, Northwest Florida Beaches International Airport, saw more than 1,000,000 travelers per year for the first time.
St. Joe is building rental apartments, town-homes and condominiums. It is also now looking to build new hotels, a new convention center and even a very large national sports facility to support tourism.
So St. Joe is more like a private investment in actively managed undeveloped land. If you, like Bruce Berkowitz, believe that the Florida panhandle has a spectacular future ahead of it, then this is the investment for you.