Tracking Allan Mecham's Arlington Value Capital Portfolio - Q1 2018 Update

|
Includes: AAP, ADS, AN, BAC, BRK.B, CMPR, CPRT, HEI, IBKR, MNRO, MSM, RCII, SAVE, TAP, TRIP, WFC
by: John Vincent
Summary

Arlington Value Capital’s 13F portfolio value increased from $1.06B to $1.21B. The number of positions decreased from 21 to 20.

Allan Mecham added Molson Coors and substantially increased Alliance Data Systems during the quarter.

The top three positions are Cimpress N.V., Berkshire Hathaway, and Alliance Data Systems, and they add up to ~49% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Allan Mecham's 13F stock portfolio on a quarterly basis. It is based on Mecham's regulatory 13F Form filed on 05/14/2018. Please visit our Tracking Allan Mecham's Arlington Value Capital Portfolio article for an idea on his investment philosophy and our last update for the fund's moves during Q4 2017.

This quarter, Mecham's 13F portfolio value increased ~14% from $1.06B to $1.21B. The number of holdings decreased from 21 to 20. The top three holdings are at ~49% while the top five are at ~66% of the 13F assets: Cimpress N.V. (NASDAQ:CMPR), Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Alliance Data Systems (NYSE:ADS), Interactive Brokers (IEX:IBKR), and Monro, Inc. (NASDAQ:MNRO).

To know more about value investing, check out Value Investing: A Value Investor's Journey Through The Unknown.

Stake Disposals:

Wells Fargo (NYSE:WFC): WFC position was established in Q2 2016 at prices between $45 and $51 and increased by ~63% the following quarter at prices between $44 and $51. It was a fairly large ~5% stake at the time. Last four quarters had seen the position reduced by ~80% to a 1.24% portfolio stake at prices between $44 and $59. The disposal this quarter was at prices between $51 and $66. The stock is now at $54.90.

TripAdvisor Inc. (NASDAQ:TRIP): TRIP was a ~1% of the portfolio position as of last quarter. It was established in Q1 2017 at prices between $41 and $53. Q2 2017 had seen a ~50% selling at prices between $35.50 and $48. There was a ~350% stake increase in the following quarter at prices between $36 and $46. Last quarter saw an about turn: ~47% selling at prices between $30 and $44 and that was followed with the elimination this quarter at prices between $34 and $44. The stock currently trades at $49.48.

New Stakes:

Molson Coors Brewing (NYSE:TAP): The 3.75% TAP position was established at prices between $72 and $85 and the stock is now well below that range at $61.43. For investors attempting to follow Arlington Value Capital, TAP is a good option to consider for further research.

Note: Molson Coors is back in the portfolio after a quarter's gap: it was a 1.73% position purchased in Q2 2017 at prices between $86 and $97 and increased by ~400% the following quarter at prices between $81 and $92. The position was disposed last quarter at prices between $76.50 and $84.50.

Stake Decreases:

Cimpress N.V.: CMPR is Arlington Value Capital's largest individual stock position at ~19% of the portfolio. It is a long-term stake that has been in the portfolio since the firm's first 13F filing in Q4 2012. The bulk of the original stake was purchased in Q1 and Q2 2013 at prices between $32 and $49. The next significant buying was in Q3 2015 when there was a ~90% increase at prices between $64.50 and $84.50. Q2 and Q3 2016 saw a ~40% reduction at prices between $81 and $102. Q1 2017 saw another about turn: ~20% increase at prices between $79.50 and $98 and that was followed with another similar increase the following quarter at prices between $82 and $95. The stock currently trades at $135. Last quarter saw a ~17% selling at prices between $97.50 and $123 and that was followed with a ~14% reduction this quarter at prices between $120 and $171.

Note: Arlington Value Capital has a ~5% ownership stake in the business.

Berkshire Hathaway: BRK.B is a long-term holding that has been in the portfolio for many years. It is currently the second-largest position at ~16% of the portfolio. The vast majority of the stake was purchased during the five quarters through Q1 2016 at prices between $124 and $152. The stock is currently at ~$194. There was a ~17% trimming in Q4 2016 at prices between $143 and $167 and that was followed with a similar reduction in the following quarter at prices between $159 and $177. Last two quarters have seen marginal trimming.

Note: Mecham has had a previous very successful round-trip with Berkshire Hathaway.

Interactive Brokers: IBKR is a ~10% stake purchased in Q4 2014 at prices between $24 and $29. The following quarter saw a roughly one-third increase at prices between $28 and $34. The stock currently trades well above those ranges at $77.78. This quarter saw a ~6% trimming.

AutoNation Inc. (NYSE:AN): The large ~7% AutoNation stake was first purchased at prices between $40 and $50 and increased by ~60% in Q1 2017 at prices between $42 and $53. Q2 2017 saw a 285% stake increase at prices between $39 and $44. The stock currently trades at $46.15. Last two quarters had seen a ~17% selling at prices between $38.50 and $56. This quarter saw marginal trimming.

Leucadia National (LUK): LUK was a very small ~1% position in 2013. During the last two quarters of 2014, the original position was increased by a whopping 15x at prices between $22 and $24.50. Q4 2015 saw a ~60% increase at prices between $16 and $21 and that was followed with a ~35% increase the following quarter at prices between $14.50 and $17.50. Q4 2016 saw a ~30% reduction at prices between $18 and $24 and that was followed with a ~12% selling in the following quarter. The stock currently trades at $23.47. There was a ~5% trimming this quarter and the stake is still fairly large at 6.43% of the portfolio.

Spirit Airlines (NASDAQ:SAVE): SAVE is a ~3% portfolio position established in Q3 2017 at prices between $32 and $54 and the stock currently trades at $38.03. There was a 24% selling last quarter at prices between $33.50 and $45.50. This quarter saw marginal trimming.

MSC Industrial Direct (NYSE:MSM): MSM is a 2.31% of the portfolio stake established in Q1 2015 and almost doubled the following quarter at prices between $69 and $81. Q3 2015 saw another ~35% increase at prices between $61 and $72. The pattern reversed in Q1 2016: ~20% reduction at prices between $56 and $76. Q4 2016 saw another one-third selling at prices between $70 and $95 and that was followed with a ~30% reduction in the following quarter at prices between $91 and $106. The stock currently trades at $91.33. Last three quarters have also seen a one-third reduction at prices between $65 and $99.

Bank of America (NYSE:BAC): BAC is a 1.35% of the portfolio position established in Q1 2016 at prices between $12 and $15 and increased by ~28% in Q3 2016 at prices between $12.74 and $16.19. There was a ~55% selling in Q4 2016 at prices between $15.50 and $23 and that was followed with another ~20% reduction the following quarter at prices between $22 and $25.50. The stock currently trades at $30.16. There was a ~56% reduction last quarter at prices between $25.50 and $30. Mecham is harvesting gains. This quarter saw marginal trimming.

Armstrong World Industries (NYSE:AWI), Copart Inc. (NASDAQ:CPRT) and Raven Industries (NASDAQ:RAVN): These are very small positions (less than ~1% of the portfolio each) that saw minor trimming this quarter.

Stake Increases:

Alliance Data Systems: ADS is now the third largest position at ~14% of the portfolio. It was first purchased in Q3 2017 at prices between $210 and $265. There was a ~25% increase last quarter at prices between $220 and $252 and that was followed with a whopping ~400% increase this quarter at prices between $213 and $276. It is now near the low end of those ranges at $213. For investors attempting to follow Mecham, ADS is a good option to consider for further research.

Monro Inc., previously Monro Muffler Brake: MNRO is a large (top five) ~7% portfolio stake established in Q2 2017 at prices between $41 and $55 and increased by ~55% in the following quarter at prices between $40 and $56. The stock currently trades at $55.85. There were marginal increases in the last two quarters.

Advance Auto Parts (NYSE:AAP): AAP was a minutely small position established in Q3 2017. Last quarter saw the position built up to a ~5% portfolio stake at prices between $79 and $104. There was a ~18% stake increase this quarter at prices between $100 and $124. The stock currently trades at ~$125.

Rent-A-Center Inc. (NASDAQ:RCII): RCII is a ~3% portfolio stake established in Q1 2017 at prices between $8 and $11.76. There was a ~85% increase the following quarter at prices between $8.50 and $13. Last two quarters had seen another ~50% increase at prices between $11 and $13.75. The stock is now at $10.15. For investors attempting to follow Mecham, RCII is a good option to consider for further research. This quarter saw a marginal increase.

Heico Corp. (NYSE:HEI): HEI is a minutely small 0.30% portfolio stake that saw a ~20% increase this quarter.

Kept Steady:

Dentsply Sirona (NASDAQ:XRAY), Deswell Industries (NASDAQ:DSWL), and Liberty Global (NASDAQ:LBTYK): These are very small positions (less than ~1% of the portfolio each) kept steady this quarter.

The spreadsheet below highlights changes to Mecham's 13F stock holdings in Q1 2018:

Allan Mecham - Arlington Value Capital - Q1 2018 13F Report

Disclosure: I am/we are long TAP, BAC. 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.