Fiat Chrysler Automobiles (FCAU - $15)(FCAU)
Fiat Chrysler Automobiles (FCA) is a major auto manufacturer with eight global brands (Chrysler, Jeep, Ram, Dodge, Ferrari, Maserati, Fiat and Alfa Romeo), which formed as a result of a multi-stage merger of Fiat and Chrysler beginning in 2009. Despite recent headlines about its intent to promote industry consolidation, we believe FCA should come close to management’s goal of €4 per share of earnings by 2018 as a standalone business. We believe FCA is well positioned to improve its profitability and narrow the margin gap with its peers. Underpinning our thesis is a strong management team led by CEO Sergio Marchionne, who has an impressive twenty-year track record of creating wealth for shareholders. FCA is aggressively shifting its mix from low-margin, mass market brands (Chrysler, Dodge, Fiat) to higher-margin specialty segments (Jeep, Alfa Romeo, Ram, Maserati), a strategy that has brought more focus to the brands and allowed the group to consistently gain market share. In addition, we expect a host of operational issues that have temporarily depressed margins to subside. Meanwhile, shareholder-friendly capital allocation maneuvers, such as the upcoming spin-off of Ferrari and refinancing of legacy Chrysler debt, should help further unlock value.
From Bill Nygren (Trades, Portfolio)'s Oakmark Fund Second Quarter 2015 Commentary.
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The investment merits of Fiat Chrysler (FCAU), which we consider a very inexpensive company led by an outstanding CEO, are discussed at length in this quarter’s Oakmark Fund commentary. In addition to buying Fiat common stock, we also purchased convertible bonds. The bonds convert to more shares of stock if the stock declines below a certain level, thus effectively providing some downside protection, yet they were trading at a price we believe represented the value of the stock price plus the bond coupons. Stated another way, by purchasing these bonds we essentially received the downside protection for free. While we never hope such insurance will be necessary, we are always happy to acquire it at no cost.
From Bill Nygren (Trades, Portfolio)'s Oakmark Select Fund Second Quarter 2015 Commentary.
