Tracking Mohnish Pabrai's Portfolio - Q2 2014 Update

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 |  Includes: BAC, BRK.B, C, CHK, GM, GS, PKX, SSE, ZINCQ
by: John Vincent

Summary

Mohnish Pabrai’s US long portfolio increased marginally from $464M to $480M this quarter.

His largest three positions are Horsehead Holding, GM Warrants, and Bank of America and they together account for close to two-thirds of the entire portfolio.

Pabrai Funds had a large stake reduction in Chesapeake Energy and a correspondingly large new position in POSCO this quarter.

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 08/13/2014. Please visit our Tracking Stocks In Mohnish Pabrai's Investment Funds series for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q1 2014.

Pabrai's US long portfolio increased marginally from $464M to $480M this quarter: there was a fairly large stake reduction in Chesapeake Energy and a correspondingly large stake establishment in POSCO. The 13F holdings in the fund increased from 8 to 9. The top-3 holdings (Horsehead Holdings, General Motors Warrants, and Bank of America) continue to represent about two-third of the assets. To learn about his distinct investing style and philosophy, check out his "The Dhandho Investor: The Low - Risk Value Method to High Returns" and other works.

New Stakes:

POSCO (NYSE:PKX): PKX is a large 15.14% of the US long portfolio stake established this quarter at prices between $70 and $77. The stock currently trades just outside that range at around $80. Mohnish Pabrai had a position (albeit smaller) in PKX in 2010 and that was disposed of in Q3 2011 at prices between $76 and $111. The large stake establishment this quarter indicates a clear bullish bias.

Stake Disposals:

None.

Stake Increases:

None.

Stake Decreases:

Chesapeake Energy Corp (NYSE:CHK): CHK was a 7.5% of the US long portfolio stake established in Q2 2012 when the price-per-share varied between $13.55 and $23.31. It was increased substantially in Q3 2012, when the price-per-share varied between $16.82 and $20.52. This quarter saw a large ~80% stake reduction at prices between $25.50 and $31.30. The stock currently trades at around $25.75. The position now accounts for 4.32% of the 13F portfolio value. Pabrai is harvesting long-term gains from this position.

NOTE: On July 1, 2014, CHK spun-off its oilfield services business (Chesapeake Oilfield subsidiary) into a stand-alone, publicly traded company called Seventy Seven Energy (NYSE:SSE). The spin-off terms called for the distribution of one share of common stock of SSE for every 14 shares of CHK held. It is interesting that Pabrai chose not to wait for the spin-off before the stake reduction.

Kept Steady:

Horsehead Holding (ZINC): ZINC is Pabrai's largest stake at 24.05% of the US long portfolio. It was established in Q4 2008 when the price-per-share varied between $2.47 and $6. The position was increased by around 14% in Q3 2012 at prices between $8.38 and $10.16 and was kept steady in the following two quarters. The stake was increased by around 150% in Q2 2013 at prices between $9.50 and $11.78 and by another 12.5% in Q4 2013 at prices between $12.19 and $16.53. Since then, the position has been kept steady. The stock currently trades at $19.41. Pabrai is very bullish on ZINC and he is sitting on large gains.

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% stake in Q1 2013. Since then, the position had been kept relatively steady. Currently, it is his second-largest position at 22.91% of the US long portfolio. The warrants have a strike price of $18.33 and expire on July 10, 2019. They currently trade at around $16.75.

Pabrai had initiated a ~10% position in General Motors (NYSE:GM) common stock in Q2 2012 at prices between $20 and $27 but over the following quarters that stake was eliminated while building an even larger position in these warrants, presumably going for the leverage (higher risk-reward).

The activity represents a clear bullish bias but Pabrai's cost-basis is lower - around $11.

Bank of America (NYSE:BAC): BAC is Pabrai's third largest position at 15.59% of the US long portfolio. Pabrai established the position in Q3 2011 with the purchase of seven million shares for a 17% portfolio-stake at prices between $6.06 and $11.09. There was a quick about-turn the following quarter, as the position was trimmed to a 5% portfolio allocation at prices between $4.98 and $7.35. In Q1 2012, ~5.4M additional shares were purchased at prices between $5.56 and $9.93. Since then, the stake had been held steady but last quarter saw a one-third stake reduction at prices between $15.57 and $17.44. The stock currently trades at $15.25.

Citigroup (NYSE:C): Citigroup stake accounts for 13.91% of the US long portfolio. The position was first established in Q4 2011 when the price-per-share varied between $23.11 and $34.16. In Q1 2012, the stake was tripled at prices between $26.31 and $38.08. In Q1 2013, the position was reduced by ~14% at prices between $39.56 and $47.60 and had been kept steady since. Last quarter saw a ~9% trimming at prices between $46.34 and $55.20. The stock currently trades at around $48.75.

Goldman Sachs (NYSE:GS): GS was a ~20% of the portfolio stake that was reduced by over 60% to an 8.27% stake in Q3 2012 when the price-per-share varied between $93.16 and $121.36. GS stake was first established in 2008 at much higher prices. In Q2 2012, the stake was increased by over 150% when the price-per-share varied between $90.43 and $117.39. The position was reduced marginally in Q4 2012 at prices between $113 and $130. It was further reduced by another 28% to a 6.15% position in Q1 2013 at prices between $128 and $159 and had since been kept steady. Q4 2013 saw a ~25% stake reduction at prices between $153 and $177. The stock currently trades at around $172 and accounts for 3.72% of the US long portfolio. The substantial stake reduction since Q4 2012 indicates a bearish bias.

Berkshire Hathaway (NYSE:BRK.B) & General Motors : BRK.B & GM are very small 0.18% of the US long portfolio position each established last quarter. Both were sizable positions in the portfolio previously: GM was a huge ~18% of the portfolio stake as of Q4 2012 but was eliminated the next quarter to build a similarly large position in GM warrants. BRK.B was a ~14% of the US long portfolio stake as of Q4 2011 but was eliminated the next quarter. Pabrai is known to use BRK.B as an alternative to holding cash. The minor stake re-establishments last quarter indicate a mild bullish bias toward these businesses.

The spreadsheet below highlights Pabrai's US stock holdings as of Q2 2014:

Click to enlarge

Disclosure: The author is long PKX. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.