Mohnish Pabrai was widely known for his entrepreneurial activities, but he later switched to funds management, where he has registered enormous success over the years. He founded Dalal Street, a hedge fund, through which he manages money for investors. Mohnish Pabrai tries to employ Warren Buffett’s investment approach and his fund also has a fee structure and there is no management fees levied on investments, taking only 25% of returns. Started only with $1 million in assets under management in 1999, the fund has an equity portfolio of $535.88 million at the end of March, down by $16.53 million from the fourth quarter of 2014. In this article, we consider its top picks for the first quarter, namely, Fiat Chrysler Automobiles NV (NYSE:FCAU), General Motors Company (NYSE:GM), HORSEHEAD HOLDING CORP. (NASDAQ:ZINC), POSCO (ADR) (NYSE:PKX), and Google Inc (NASDAQ:GOOG).
Mohnish Pabrai is just one of more than 700 hedge funds that we have in our database, whose equity portfolios we collate quarterly as part of our small-cap strategy. Even though most smaller investors believe that tracking 13F filings is a fruitless endeavor because they are filed with a delay of a maximum of 45 days after the end of a calendar quarter, the results of our research prove that is not the case. To be on the safe side, we used a delay of 60 days in our back tests that involved 13F filings between 1999 and 2012 and we still managed to gain an annual alpha in the double digits. Moreover, since the official launch of our strategy in August 2012, our small-cap strategy has obtained returns of more than 144%, beating the S&P 500 Total Return Index by greater than 84 percentage points (see the details).
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Fiat Chrysler Automobiles NV (NYSE:FCAU) represents Pabrai’s largest position, which contains 13.80 million shares valued at $225.08 million. The Italian-American company, which ranks on the seventh spot among global automakers, is currently facing a recall problem that is likely to affect up to 3,900 Fiat 500e vehicles manufactured between 2013 through 2015. The vehicles are reported to have a problem with the control units. This was not the first time that Fiat Chrysler Automobiles NV (NYSE:FCAU) has recalled this vehicle, having done so twice this year over software malfunction. For the first quarter of 2015, the company posted EPS of $0.05, missing the estimates by $0.02. A couple of days ago, Barclays reiterated their ‘Overweight’ rating on the stock. Analysts expect that the automaker will post earnings per share of $0.87 for the current fiscal year. Other shareholders of Fiat Chrysler include Cliff Asness‘ AQR Capital Management and Ken Heebner’s Capital Growth Management, owning 8.72 million shares and 6.38 million shares respectively.
Mohnish Pabrai also held warrants underlying around 5.99 million shares of General Motors Company (NYSE:GM) at the end of the first quarter of 2015 valued at $117.63 million. General Motors was also affected significantly by recalls in the last months. It currently has to recall over 243,000 vehicles over faulty Takata airbags. These are vehicles that were designed by Toyota Motor Corporation and manufactured at the two companies’ jointly owned California factory. General Motors Company (NYSE:GM) posted earnings per share of $0.56 for the first quarter, up from $0.06 a year earlier on revenue of $35.70 billion, down by 4.5% on the year. For the current year, the company is expected to post $4.46 in earnings per share. Among the funds we track, Warren Buffett‘s Berkshire Hathaway is the largest shareholder of General Motors Company (NYSE:GM) with 41.00 million shares followed by David Tepper’s Appaloosa Management Lp with 15.30 million shares.
The third stock among Mohnish Pabrai’s top picks was HORSEHEAD HOLDING CORP. (NASDAQ:ZINC), which is a manufacturer of Zinc metal, powder, and dust as well as Zink oxide. At the end of the first quarter of 2015, Dalal Street held a total of 6.33 million shares worth $80.18 million. The company recently earned $13.5 million after selling its property to Shell Oil Company for a proposed ethane plant. In its most recent results, HORSEHEAD HOLDING CORP. (NASDAQ:ZINC) missed the expectations by nearly 10%, when it reported a loss per share of $0.34 for the first quarter. Aside from Dalal Street, Jonathan Savitz‘s Greywolf Capital Management and Chuck Royce’s Royce & Associates are two other investors bullish on Horsehead.
Mohnish Pabrai increased his stake in POSCO (ADR) (NYSE:PKX) by more than 200% to 983,680 shares valued at $53.77 million. The Pohang, South Korea-based multinational steelmaker has recently sold 38% of its engineering and construction division to The Public Investment Fund of Saudi Arabia (PIF) in a $1.1 billion deal signed on June 15, which will also involve a joint venture company with the Saudi government. Back in 2005, POSCO (ADR) (NYSE:PKX) also signed a deal to set up a $12 billion plant in India, but after a 10-year wait the prospects of the project look murky. Among the funds we track, Martin Whitman‘s Third Avenue Management is the largest shareholder with 1.90 million shares as of the end of March.
Google Inc (NASDAQ:GOOG) represents Pabrai’s largest tech holding with a stake that contains 69,000 class C shares worth $37.81 million. The multinational technology company has been facing numerous challenges regarding privacy issues. At the same time, several other entities have complained that Google Inc favors its own products in its search engine over other products. Getty Images, Inc., which is the world’s largest photo agency, has made a complaint earlier in the year, citing that the Mountain View-based company favors its image search service over that of its rivals, and has joined a European Union case against Google as a third party. In another legal battle, Google has lost an appeal case at the U.S. Supreme Court in which it appealed to avoid defending itself over violation of patent rights held by Vederi LLC through its Street View mapping app. In another interesting development, Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) have reached an agreement to build a system that works like an artificial neural network with the ability to recognize images and create psychedelic pictures. At the end of the first quarter, a total of 108 hedge funds held long positions in Google’s class C stock with an aggregate value of $6.88 billion. Some of these hedge funds include billionaire Andreas Halvorsen‘s Viking Global and Boykin Curry’s Eagle Capital Management.
Disclosure: None
