2018 has been an eventful year for Mohnish Pabrai (Trades, Portfolio). The guru investor’s family of funds has been raising money at a breakneck pace, possibly in preparation of the coming market bubble busting. According to its latest Form D filings with the Securities and Exchange Commission, Pabrai has raised close to $1 billion in new capital across three funds. Looking at the fund’s Investment Adviser Public Disclosure, he’s also hired a chief financial officer, Fahad Missmar.
With his current reporting of Dalal Street holdings, there are just two positions. Fiat Chrysler (FCAU, Financial) comprises 82.06% and Ferrari (RACE, Financial), which was spun off of Fiat in 2016, comprises 17.94%. Both companies have market caps over $30 billion; while both are worth owning, Fiat Chrysler is the bigger bargain.
Fiat Chrysler is the one of the world’s largest automotive manufacturers with a roster of brand-name vehicles, including Jeep, Maserati, AlphaRomeo and Dodge. It has grown considerably over the last decade, returning to profitability.
Fiat’s stock is down 30% since its Jan. 26 high, further declining over the last month following the abrupt news that the company's CEO, Sergio Marchionne, had stepped down due to health complications from shoulder surgery. He died just days after the announcement. This has left a void at the Turin, Italy-based company, especially since Marchionne was credited with turning the carmaker around and into one of the most profitable companies in the industry.
In less than a decade, Fiat has gone from losing 830 million euros on 32 billion euros in sales during 2009 to earning over 3.4 billion euros on 111 billion euros in sales over the last 12 months. The company is now on track to earn north of 4 euros per share this year and next. That’s almost 50% of its total market cap in the next two years.
Those are very aggressive estimates considering the company’s recent earnings release. At the first of August, Fiat reported unit sales were up 6% to 170,970 versus a negative forecast by Edmunds. Retail sales were also up 10% and accounted for 78% of total sales, helped by strong growth at Jeep and Alfa Romeo, which were up 15% and 189%. The company missed earnings estimates, but should still be on track to book close to $3.50 per share in 2019. That’s still private equity dream results, but the public markets haven’t been as kind to the major automakers, other than Tesla of course.
While Pabrai joins Ruane Cunniff (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) with positions over 10 million shares in Fiat, he is the only one that is placing such a large percentage of assets under management in the stock. That conviction is what should draw in many value investors that are not already on board.
Disclosure: I am not long or short any stocks mentioned in this article.
