Tracking Mohnish Pabrai's Portfolio – Q2 2017 Update

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This article is part of a series that provides an ongoing analysis of the changes made to Mohnish Pabrai’s US stock portfolio on a quarterly basis. It is based on Pabrai’s regulatory 13F Form filed on 08/11/2017. Please visit our Tracking Mohnish Pabrai’s Portfolio series for an idea on how his holdings have progressed over the years and our previous update highlighting the fund’s moves during Q1 2017.

Pabrai’s US long portfolio value increased ~4% from $389M to $405M this quarter. The number of holdings decreased from seven to six. The portfolio continues to be very concentrated with the top three holdings (Fiat Chrysler Automobiles (NYSE:FCAU), General Motors (NYSE:GM) Warrants, and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL)) accounting for 75.46% of the entire portfolio. The 13F portfolio assets are down around ~30% from the beginning of 2015.

In June, Pabrai indicated that he is finding nothing to buy in the US. Currently, ~70% of his portfolio is in companies domiciled outside the US – this is compared to less than 25% previously. “Few Bets. Big Bets. Infrequent Bets”, his most recent blog post title is a succinct representation of his investing style. To learn more about Mohnish Pabrai’s distinct investing style and philosophy, check out his book “The Dhandho Investor: The Low-Risk Value Method to High Returns” and other works.

New Stakes

None.

Stake Disposals

Seritage Growth Properties (NYSE:SRG): SRG was a 6.51% of the portfolio position as of Q4 2016. It was established in Q1 2016 at prices between $37.50 and $51.50 but was almost sold out last quarter at prices between $39.80 and $47.30. The remaining stake was disposed this quarter at prices between $38.50 and $44. The stock is currently at $46.50. SRG is a REIT spinoff from Sears Holdings (NASDAQ:SHLD) that started trading in July 2015 at ~$37 per share.

Note: Pabrai revealed his reasoning for the sale as follows: a Chapter 7 bankruptcy by Sears before 2020 could result in dilution for Seritage holders as a capital raise would be needed. That contingency is more likely now than when he started buying in Q1 2016.

Stake Increases

AerCap Holdings NV (NYSE:AER): AER is a fairly large ~11.5% of the portfolio stake established in Q2 2016 at prices between $31.50 and $42.50. Last three quarters also saw a combined ~55% increase at prices between $38.50 and $47.50. The stock is now at $48.33.

Note: David Einhorn (Greenlight) and Leon Cooperman (Omega) also hold large stakes in AER.

Fiat Chrysler Automobiles: FCAU is Pabrai’s largest individual stock position at 34.45% of the US long portfolio. He first started buying Fiat in 2012 when the market cap was just $5B. The stock currently trades at $11.61 compared to his cost basis of ~$4. Q4 2016 had seen a ~13% trimming at prices between $6 and $9 while last quarter saw a ~8% stake increase at prices between $9.50 and $11.55. There was a marginal increase this quarter.

Note 1: Pabrai’s Fair Value Estimate for FCAU is ~$25 in a couple of years (based on ~$4 earnings estimate for 2018) and upwards of ~$30 in a takeout. Also, he views the parts business (Magneti Marelli, Comau and Teksid which together bring in more than $10B annual revenue), Maserati and Jeep as options for value creation. Oil below $60 for the foreseeable future (ensures margins for the Jeep, RAM, and other SUV brands) is a key element of his thesis.

Note 2: Fiat Chrysler Automobiles spun off Ferrari (NYSE:RACE) in January 2016. The prices quoted above are adjusted for that spinoff. First day of trading post spinoff was Jan 4, 2016. FCAU’s shares closed at $13.99 EOY 2015 and started trading at ~$9 post spinoff.

General Motors 2019 WTS (GM-WS-B): Pabrai started a 4.55% position in these warrants (CUSIP 37045V126, Yahoo Ticker GM-WTB) in Q4 2012. It was increased to a 20% portfolio stake in Q1 2013. Since then, the position had been kept relatively steady. Currently, it is his second-largest position at 26.13% of the US long portfolio. The warrants have a strike price of $18.33 and expire on July 10, 2019. They currently trade at $16.91. Pabrai’s cost basis is at around $11. Q4 2016 saw a ~7% trimming while last quarter there was a ~9% increase. There was a marginal increase this quarter.

Note 1: Pabrai’s Fair Value Estimate on the warrants is a triple from current price in a couple of years. The thesis is partly based on the idea that the non-cyclical portions (finance, auto-parts, and China) of GM’s business is worth ~$70B (14x multiple on $5B estimated cash flow).

Note 2: Pabrai had initiated a ~10% position in General Motors common stock in Q2 2012 at prices between $20 and $27, but that stake was quickly eliminated while building the position in these warrants. Pabrai prefers the warrants due to the following factors: a) Leverage, and b) provisions that allow conversion without triggering a taxable event.

Stake Decreases

None.

Kept Steady

Alphabet, Inc.: GOOG is a top-three ~15% of the US long portfolio position established in Q4 2014 at prices between $495 and $577. The stock currently trades well above that range at $914. Pabrai is sitting on huge long-term gains. There was a ~4% trimming last quarter.

Ferrari NV: The top-five 8.44% Ferrari stake was established as a result of the spinoff of Ferrari from Fiat Chrysler Automobiles. The Ferrari portion accounted for slightly more than one-third of the combined business. Trading opened Jan. 4, 2016, at ~$47 per share and currently trades at $108. 2016 had seen a ~70% stake reduction at prices between $40 and $59.

Southwest Airlines (NYSE:LUV): LUV is a 4.62% of the US long portfolio stake established in Q3 2016 at a cost basis in the mid-30s. Q4 2016 saw a ~40% reduction at prices between $38 and $51. The stock currently trades at $54.14.

Note: The reason for picking Southwest over other airlines was the following: Pabrai believes Southwest will begin flying to Hawaii shortly and to Europe eventually. He expects those moves to improve economics and provide a runway for growth.

The spreadsheet below highlights Pabrai’s US stock holdings as of Q2 2017:

Mohnish Pabrai

Disclosure: I am/we are long GM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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