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 02/13/2017. 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 Q3 2016.
Pabrai's US long portfolio value increased 2.65% from $338M to $347M this quarter. The number of holdings decreased from 8 to 7, as a small position in Berkshire Hathaway (BRK.A, BRK.B) was dropped during the quarter. The portfolio continues to be very concentrated, with the top three holdings (Fiat Chrysler Automobiles (NYSE:FCAU), General Motors Warrants (GM-WS-B), and Alphabet (GOOG, GOOGL)) accounting for 74.42% of the entire portfolio. The 13F portfolio assets are down around ~35% from the beginning of 2015.
To learn 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.
Berkshire Hathaway: BRK.B was a ~2% of the US long portfolio stake established in Q4 2015 at prices between $130 and $139. Q1 2016 saw a ~17% stake reduction at prices between $124 and $143, and that was followed with a ~35% selling last quarter at prices between $142 and $151. The disposal this quarter was at prices between $143 and $167. The stock currently trades at $166.
Note: BRK.B has seen several previous roundtrips in the portfolio. The last major such activity occurred during 2011-12: 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.
AerCap Holdings NV (NYSE:AER): AER is a fairly large ~8% of the portfolio stake established in Q2 2016 at prices between $31.55 and $42.19. This quarter saw an ~8% increase at prices between $38.50 and $45.50. The stock is now at $46.41.
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 31.46% of the US long portfolio. It was revealed recently that they first started buying Fiat in 2012, when the market cap was just $5B. The stock currently trades at $10.94, compared to his cost basis of ~$4. The last three quarters had seen marginal stake reductions. This quarter saw a ~13% trimming at prices between $6 and $9.
Note 1: Pabrai's Fair Value Estimate for FCAU is ~$20 in a couple of years (based on ~$4 earnings estimate for 2018) and upwards of ~$30 in a take-out. Also, he views the parts business, Maserati and Jeep, as options for value creation.
Note 2: Fiat Chrysler Automobiles spun off Ferrari in January 2016. The spin-off accounted for slightly more than one-third the combined business. The prices quoted above are adjusted for that spin-off. The first day of trading post spin-off was January 4, 2016. FCAU shares closed at $13.99 EOY 2015 and started trading at ~$9 post spin-off.
Note 3: On October 13, 2014, Fiat Chrysler had an IPO on the New York Stock Exchange. Pabrai disclosed the stake in the EOY 2014 13F filing.
General Motors 2019 WTS: 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 27.58% of the US long portfolio. The warrants have a strike price of $18.33 and expire on July 10, 2019. They currently trade at $17.67. Pabrai's cost basis is at around $11. This quarter saw a ~7% trimming.
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 (NYSE:GM) 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.
Ferrari NV (NYSE:RACE): The top-five 6.69% Ferrari stake was established as a result of the spin-off of Ferrari from Fiat Chrysler Automobiles. The Ferrari portion accounted for slightly more than one-third of the combined business. Trading opened on January 4, 2016 at ~$47 per share and currently trades at $66.17. Q2 2016 saw a ~16% stake reduction at prices between $39 and $46, and that was followed with another ~37% selling last quarter at prices between $39.50 and $52. This quarter saw another ~40% selling at prices between $50.50 and $59.
Southwest Airlines (NYSE:LUV): LUV is a 4.32% of the US long portfolio stake established last quarter at prices between $35.50 and $43.50. This quarter saw a ~40% reduction at prices between $38 and $51. The stock currently trades at $55.73.
Alphabet Inc.: GOOG is a top-three 15.39% 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 $819. Pabrai is sitting on huge long-term gains.
Seritage Growth Properties (NYSE:SRG): SRG is a 6.51% of the portfolio position established in Q1 2016 at prices between $37.50 and $51.50. The stock is currently at $44.61. SRG is an REIT spin-off from Sears Holdings (NASDAQ:SHLD) that started trading in July 2015 at ~$37 per share.
The spreadsheet below highlights Pabrai's US stock holdings as of Q4 2016:
Disclosure: I am/we are long GM, SHLD.
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.