Mohnish Pabrai - Pabrai Investments Portfolio

Mohnish Pabrai - Pabrai Investments Q4 2023 Portfolio

Pabrai Investments, an investment fund managed by Mohnish Pabrai, disclosed 4 security holdings in their SEC 13F filing for the fourth quarter of 2023, with a total portfolio value of $248,126,000

 

Top Holdings:

As of 31 December, 2023, Mohnish Pabrai – Pabrai Investments holdings were:

AMR – Alpha Metallurgical Resources Inc.

·      Represents the largest portion of Pabrai Investments’ portfolio at 53.86%.

·      Reduced their position by 10.69%.

·      Reported Price: $338.92 per share, with the value at the reported price being approximately $133,641,000.

ARCH – Arch Resources Inc.

·      Constitutes 15.72% of the portfolio.

·      Added a significant 200.36% to their position.

·      Reported Price: $165.94 per share, with the total value at the reported price around $38,995,000.

HCC – Warrior Met Coal Inc.

·      Accounts for 15.47% of the portfolio.

·      A new purchase by Pabrai Investments.

·      Reported Price: $60.97 per share, with the total investment at the reported price being $38,394,000.

CEIX – CONSOL Energy Inc.

·      Makes up 14.95% of the portfolio.

·      Reduced their position by 6.95%.

·      Reported Price: $100.53 per share, with the portfolio’s value at the reported price being $37,096,000.

Who is Mohnish Pabrai ?

June 12, 1964:

Mohnish Pabrai was born in Mumbai, India.

1983:

Pabrai studied Computer Science at Clemson University, South Carolina.

1986-1991:

Pabrai works at Tellabs, initially in the high-speed data networking group before moving to the international subsidiary in 1989.

1991:

Pabrai marries Harina Kapoor. In the same year, he starts his IT consulting and systems integration company, TransTech, Inc., with initial capital from his 401(k) and credit card debt.

1999:

Pabrai founds Pabrai Investment Funds, a family of hedge funds inspired by the Buffett Partnerships.

2000:

Pabrai sells TransTech, Inc. to Kurt Salmon Associates for $20 million.

2005:

Mohnish Pabrai and Harina Kapoor start the Dakshana Foundation, aiming to alleviate poverty in India by providing tutoring services to underprivileged members of Indian society.

June 2007:

Pabrai, along with Guy Spier, bids $650,100 for a charity lunch with Warren Buffett, which makes headlines.

2001-2003:

Pabrai authors a series of articles on investing, later compiled in his book “Mosaic: Perspectives on Investing.”

2019:

Pabrai and Harina Kapoor divorce.

Why Mohnish Pabrai is investing in Alpha Metallurgical Resources Inc. (AMR)

Rationale behind Pabrai’s interest in AMR, leveraging the detailed financial metrics and market performance of the company.

Valuation and Market Performance:

As of February 16, 2024 AMR boasts a market capitalization of $5.02 billion and an enterprise value of $4.73 billion, signaling a robust market presence. The stock’s impressive 126.09% rise over the past 52 weeks, coupled with a beta of 1.43, indicates higher volatility but also reflects strong market confidence and growth potential. The stock’s performance, supported by a solid RSI of 51.63, suggests a balanced market sentiment, neither overbought nor oversold.

 

Financial Health and Efficiency:

AMR’s financial health is highlighted by a current ratio of 3.33 and a quick ratio of 2.33, suggesting strong liquidity and the ability to meet short-term obligations. The company’s debt to EBITDA ratio of 0.01 and debt to FCF ratio of 0.02 further underscore its minimal leverage and strong financial position. Remarkably, AMR has managed an ROE of 101.30% and an ROA of 32.70%, showcasing exceptional efficiency in utilizing equity and assets to generate profits.

 

Earnings and Valuation Ratios:

With a trailing PE ratio of 7.56 and a forward PE of 8.60, AMR is attractively valued compared to industry peers. The EV/EBITDA ratio of 4.83 and EV/FCF ratio of 7.88 are indicative of a potentially undervalued stock, given its strong cash flow generation capabilities. AMR’s EPS of $50.00 further attests to its profitability and earning power.

 

Dividends and Shareholder Returns:

AMR’s dividend yield of 0.53%, along with a payout ratio of 4.00%, may seem modest but is complemented by a substantial buyback yield of 20.36%. This holistic approach to shareholder returns, including dividends and buybacks, underscores AMR’s commitment to returning value to its shareholders.

 

Strategic Implications for Pabrai’s Investment:

Mohnish Pabrai’s investment philosophy, heavily influenced by Warren Buffett, focuses on companies that are undervalued but have strong fundamentals and growth prospects. AMR’s solid financial metrics, coupled with its significant market performance and undervaluation signs, align well with Pabrai’s strategy. The high insider and institutional ownership (16.23% and 88.56%, respectively) further validate the confidence in the company’s management and growth trajectory.

 

Moreover, Pabrai’s philanthropic endeavors, notably through the Dakshana Foundation, emphasize sustainable and impactful investments, hinting at a long-term vision behind his investment choices. AMR’s strong cash flow, efficient capital allocation, and shareholder-friendly policies resonate with such a vision, offering both growth potential and stability.

 

Conclusion:

Mohnish Pabrai’s investment in AMR appears to be a calculated move, aligning with his value investment philosophy and long-term outlook. AMR’s robust financial health, impressive market performance, and shareholder-friendly policies present a compelling case for value investors. As Pabrai often seeks undervalued opportunities with significant upside potential, AMR’s current valuation and financial metrics likely present an attractive investment proposition, poised for sustainable growth and rewarding shareholder returns.

Why Mohnish Pabrai is investing in Arch Resources Inc. (ARCH) ?

Introduction

 

Arch Resources, Inc. (Ticker: ARCH) may present an intriguing case for value investors like Mohnish Pabrai, who hunt for stocks that appear to be trading for less than their intrinsic or book value. A thorough analysis of ARCH’s financial health and market performance suggests that it could potentially be a hidden gem in the commodities sector, particularly in the coal industry.

 

Market Position and Financials

 

With a market capitalization of $3.08 billion and a trailing twelve months (ttm) revenue of $3.15 billion, ARCH shows a revenue-to-market cap ratio that is close to 1:1, indicating that the stock could be reasonably valued or even undervalued relative to its sales. The net income of $464.04 million is robust, and an EPS (ttm) of $24.20 reflects a healthy profit per share that value investors might find attractive.

Valuation Metrics

 

ARCH’s PE ratio stands at 6.93, which is relatively low compared to the overall market, suggesting that the stock might be undervalued. The forward PE ratio of 7.61 indicates expectations of continued earnings strength. Additionally, a dividend yield of 4.65% is a strong signal for value investors looking for income in addition to capital appreciation. However, a negative revenue growth (YoY) of -15.54% does warrant a closer look to understand the context of these figures.

Historical Performance and Dividends

 

Despite a decrease in revenue growth, ARCH’s ability to maintain a significant gross profit margin of 25.55% showcases effective cost management. The negative net income growth of -65.13% year-over-year is concerning, but this needs to be weighed against the backdrop of a cyclical commodities industry and external economic factors.

The dividend per share saw a sharp decline, which is NOT typically favored by value investors who prefer steady or growing dividends. However, a significant reduction in shares outstanding by -8.59% YoY indicates a share buyback, which can be a positive sign as it often reflects management’s confidence in the company’s future and helps to boost EPS.

 

Liquidity and Debt

 

A current ratio of 2.49 and a quick ratio of 1.65 signal a strong liquidity position, meaning ARCH should be able to cover its short-term liabilities efficiently. The low Debt/Equity ratio of 0.10 is encouraging, as it suggests that the company is not over-leveraged and has a conservative capital structure, which is a key factor for value-oriented investing.

 

Efficiency Ratios and Returns

 

The return on equity (ROE) is quite high at 32.20%, significantly above the average ROE for the S&P 500. This indicates that ARCH is efficient at generating profits from its shareholders’ equity. Similarly, the return on assets (ROA) of 19.20% and the return on invested capital (ROIC) of 28.58% are strong, pointing to an efficient use of assets and capital.

Stock Performance and Analyst Opinions

 

The beta of 0.74 suggests that the stock is less volatile than the market, which can be appealing for risk-averse investors. With a 52-week price change of 11.06%, the stock has shown resilience and a potential undervaluation as per the price target of $192.67, representing a 14.90% upside according to analyst consensus.

 

Conclusion

 

Arch Resources, Inc. stands out as a strong candidate for value investing. Its low valuation multiples, high dividend yield, strong liquidity, low debt levels, and high return ratios paint the picture of a company that is potentially undervalued by the market. However, the negative growth in revenue and net income growth could be a concern, and value investors should consider these factors within the broader economic and industry context before making investment decisions. The strong buy analyst consensus adds a layer of confidence in the stock’s potential upside. As always, investors should perform their due diligence and consider their investment horizon and risk tolerance when evaluating ARCH as a potential addition to their portfolios.

Mohnish Pabrai's Investing Principles

Focus on undervalued businesses with strong fundamentals and a competitive advantage.

Mohnish Pabrai

Employ a long-term investment horizon and avoid chasing short-term market trends.

Mohnish Pabrai

Maintain a diversified portfolio but concentrate on a few high-conviction investments.

Mohnish Pabrai

Develop a circle of competence and only invest in businesses you understand well.

Mohnish Pabrai

Be patient and disciplined, waiting for the right opportunities to arise.Embrace a margin of safety by buying stocks significantly below their intrinsic value.

Mohnish Pabrai

Learn from the mistakes of others and the wisdom of successful investors.

Mohnish Pabrai

Mosaic: Perspectives on Investing

Mohnish Pabrai, a renowned value investor and philanthropist, has long been admired for his investment strategies that echo the philosophies of Warren Buffett and Charlie Munger offers valuable insights into the world of value investing in his book “Mosaic: Perspectives on Investing.” Originally a collection of articles, the book delves into Pabrai’s investment philosophy, drawing heavily on the wisdom of Buffett and other legendary investors.

Pabrai emphasizes the importance of understanding the intrinsic value of a business rather than solely focusing on its stock price. He encourages investors to develop a margin of safety by buying stocks at a significant discount to their intrinsic value, offering a buffer against potential market fluctuations.

 

Unveiling the Mosaic Theory

 

The mosaic theory, a central theme in Pabrai’s book, suggests that investors can gain a comprehensive understanding of investment opportunities by piecing together disparate bits of publicly available information. Like a mosaic artist arranging fragments to create a complete picture, investors analyze various data points to make informed decisions. Pabrai emphasizes that this approach requires patience, diligence, and a keen analytical mind.

 

Pabrai’s Top Investing Principles

 

Value Investing at the Core: Pabrai is a staunch proponent of value investing, a principle rooted in acquiring stocks at prices significantly lower than their intrinsic values. This margin of safety provides a cushion against errors in judgment and market volatility.

 

Focus on Few Bets, Big Bets, Infrequent Bets: Borrowing from Munger’s philosophy, Pabrai advocates for concentrating investments in a limited number of high-conviction opportunities rather than diversifying extensively. This approach is predicated on the belief that quality trumps quantity in the investment world.

 

Clone Investment Ideas: Pabrai does not shy away from “cloning” investment ideas from successful investors. He argues that following the footsteps of proven investors can lead to significant gains, as long as one deeply understands the rationale behind the original investment.

 

Invest with a Business Owner’s Perspective: Pabrai encourages investors to perceive stock purchases not as buying shares but as acquiring portions of businesses. This perspective fosters a deeper understanding of the underlying business and its long-term potential.

 

Understand the Power of Compound Interest: Pabrai highlights the exponential growth potential of investments through compound interest. He underscores the importance of patience and the long-term horizon in realizing significant returns.

 

Risk and Uncertainty are not Synonymous: Pabrai distinguishes between risk (the likelihood of permanent loss of capital) and uncertainty (the range of possible outcomes). He suggests that embracing uncertainty can lead to lucrative investment opportunities, provided the risk is minimal.

 

Be Contrarian: Pabrai believes in going against the crowd when fundamentals strongly support an investment. Contrarian bets, made after thorough analysis, can yield substantial rewards when the market corrects its misjudgments.

 

Margin of Safety: Echoing Benjamin Graham, Pabrai insists on a significant margin of safety in every investment. This principle acts as a buffer against miscalculations and unforeseen market downturns.

 

Look for Low-Risk, High-Uncertainty Situations: These situations, according to Pabrai, are fertile grounds for value investors. The market often overreacts to uncertainty, creating opportunities to buy undervalued stocks with minimal risk.

 

Invest in Simple Businesses: Pabrai advises against investing in businesses that are difficult to understand. Simplicity in business model and operations often translates to predictability and stability in earnings.

 

Conclusion

“Mosaic: Perspectives on Investing” is not simply a collection of investing formulas; it’s a call to develop a long-term investment mindset based on sound principles and a deep understanding of the businesses you invest in.

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