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Mohnish Pabrai Drives Away From Fiat Chrysler, Sets Sights on Retail REIT

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·5 min read
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Renowned investor Mohnish Pabrai (Trades, Portfolio), who is the managing partner of Pabrai Funds, disclosed in his portfolio for the second quarter that he divested of his stake in Fiat Chrysler Automobiles NV (NYSE:FCAU) and entered a position in Seritage Growth Properties (NYSE:SRG).


As a result of not being able to find 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 that he moved the vast majority of his portfolio into India, Turkey and South Korea. The U.S.-based portfolio, which is valued at $148 million, represents a small fraction of the California-based firm's assets under management.

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Fiat Chrysler

Having trimmed his position for the past several quarters, the value investor sold his remaining 680,045 shares of Fiat Chrysler, impacting the equity portfolio by -6.05%. The stock traded for an average price of $8.61 per share during the quarter.

Since establishing the holding in the fourth quarter of 2014, GuruFocus data shows Pabrai gained 6.13% on the investment.

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The car manufacturer, which is headquartered in London, has a $23.01 billion market cap; its shares were trading around $11.39 on Friday with a price-book ratio of 0.83 and a price-sales ratio of 0.18.

The Peter Lynch chart show the stock is trading slightly above its fair value, suggesting it is overpriced.

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Fiat Chrysler's financial strength and profitability were both rated 5 out of 10 by GuruFocus. As a result of issuing approximately 2.5 billion euros ($2.9 billion) in new long-term debt over the past three years, the company has weak interest coverage. The low Altman Z-Score of 1.2 warns the company could be in danger of going bankrupt.

Although the operating margin is expanding, the company is also being weighed down by negative returns that underperform a majority of competitors. Fiat Chrysler also has a low Piotroski F-Score of 3, which indicates business conditions are in poor shape. Due to a decline in revenue per share over the past five years as well as a loss in operating income, the carmaker's predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank typically see their stocks return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Fiat Chrysler, Pioneer Investments (Trades, Portfolio) has the largest stake with 1.25% of outstanding shares. Bill Nygren (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Lee Ainslie (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Francis Chou (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) are also shareholders.

Seritage Growth Properties

Pabrai invested in 4.73 million shares of Seritage Growth Properties, allocating 36.52% of the equity portfolio to the stake. During the quarter, shares traded for an average price of $10.04 each. He previously sold out of the stock three years ago.

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The real estate investment trust, which is headquartered in New York and focuses on retail properties like shopping malls, has a market cap of $681.41 million; its shares were trading around $12.43 on Friday with a price-book ratio of 0.66 and a price-sales ratio of 3.28.

According to the price chart, the stock is trading above its median price-sales value and below its median price-book ratio.

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Weighed down by debt, Seritage's financial strength was rated 2 out of 10 by GuruFocus. The low Altman Z-Score of 0.09 also warns the company could be at risk of bankruptcy, especially since it has recorded a decline in revenue per share over the past five years.

The REIT's financial strength fared even worse, scoring a 1 out of 10 rating on the back of negative margins and returns that underperform a majority of industry peers as well as a low Piotroski F-Score of 2.

With an 8.69% stake, Hotchkis & Wiley is Seritage's largest guru shareholder. Third Avenue Management (Trades, Portfolio), Edward Lampert (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Pioneer also have positions in the stock.

Additional trades

Pabrai also added to his Micron Technology Inc. (NASDAQ:MU) stake during the quarter, increasing it by 0.89% to 1.82 million shares. The trade had an impact of 0.56% on the equity portfolio.

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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This article first appeared on GuruFocus.