Renowned investor Mohnish Pabrai (Trades, Portfolio), who is the managing partner of Pabrai Funds, disclosed in his portfolio for the first quarter that he divested of his stake in GrafTech International Ltd. EAF.
After he began having trouble finding good opportunities in the U.S. market, the guru, who oversees an extremely concentrated portfolio of discounted, out-of-favor stocks, told GuruFocus in an interview last year he moved the vast majority of his portfolio into India, Turkey and South Korea. The U.S.-based portfolio represents a small fraction of the California-based firm’s assets under management.
GrafTech International
The guru sold his 4.45 million remaining shares of GrafTech, impacting the equity portfolio by 19.07%. The stock traded for an average price of $9.71 per share during the quarter.
GuruFocus estimates Pabrai has lost 12.65% on the investment since establishing it in the second quarter of 2019.
The Brooklyn Heights, Ohio-based company, which manufactures graphite electrodes and petroleum coke for the production of electric arc furnace steel and other metals, has a $1.57 billion market cap; its shares were trading around $6 on Thursday with a price-earnings ratio of 2.53 and a price-sales ratio of 1.03, which GuruFocus noted are near two-year lows.
The Peter Lynch chart shows the stock, which has tumbled more than 40% since the beginning of the year, is trading significantly below its fair value.
On May 6, the company reported its financial performance for the first quarter of 2020. It posted earnings of 45 cents per share on $319 million in revenue, which were down from income of 68 cents per share on $475 million in sales a year ago. GrafTech attributed the decline to lower sales volumes, which reflected continued customer inventory destocking, lower steel production levels and the preliminary economic impacts of the Covid-19 virus. The company also reduced its quarterly dividend to one cent, but assured investors it is well positioned in the current economic environment.
GuruFocus rated GrafTech’s financial strength 3 out of 10. Although it has adequate interest coverage, the Altman Z-Score of 2.52 indicates the company is under some pressure since its earnings and revenue have declined over the past year.
The company’s profitability and growth scored a 5 out of 10 rating, driven by strong margins and returns that outperform a majority of competitors. GrafTech also has a moderate Piotroski F-Score of 6, which implies a stable operating environment. The business predictability rank of one out of five stars is on watch, however. According to GuruFocus, companies with this rank typically return an average of 1.1% per annum over a 10-year period.
With a 1.97% stake, Yacktman Asset Management (Trades, Portfolio) is now the company’s largest guru shareholder. Jeremy Grantham (Trades, Portfolio), Hotchkis & Wiley, Joel Greenblatt (Trades, Portfolio), Philippe Laffont (Trades, Portfolio) and Chuck Royce (Trades, Portfolio) are also invested in GrafTech.
Additional trades
During the quarter, Pabrai also reduced his holdings of the two other U.S.-listed stocks in his $81 million equity portfolio. He curbed the Micron Technology Inc. MU stake by 1.31% and slashed the Fiat Chrysler Automobiles NV FCAU holding by 91.76%.
The investor manages roughly $1 billion across all of his funds. Unlike other well-known investors, U.S.-listed stocks make up a tiny fraction of his overall holdings, with international stocks making up the majority.
Disclosure: No positions.
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