Pacifica Capital Investments’ Top Stock Picks Lead Into Q2 by Warren Buffett’s Holding Company

Pacifica Capital Investments is a Los Angeles-based investment firm founded by Steve Leonard in April of 1998. Mr. Leonard’s asset management firm primarily seeks well-run companies that trade at prices below their intrinsic value and this strategy has paid off handsomely since the firm’s inception. However, value investing hasn’t performed exceptionally over the past several years, and neither did PCI’s investment strategy. Pacifica Capital Investments has lagged behind the S&P 500 gauge each year since 2010, but the firm’s annualized return of 11.1% since inception is still ahead of the S&P 500’s 5.4% annualized return over the same time span. PCI has had only five down years since inception, and the losses in three of those five years did not exceed 1.1%. Considering the strong performance of PCI’s equity portfolio during its 18-year history, retail investors could strongly benefit from getting a glimpse into PCI’s top stock picks ahead of the second quarter of 2016, which we’ll provide in this article.

Steve Leonard of Pacifica Capital

Our backtests that covered the period between 1999 and 2012 showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5. Leucadia National Corp. (NYSE:LUK)

 – Number of shares held by PCI (as of March 31): 907,616

 – Value of PCI’s holding (as of March 31): $14.68 Million

Pacifica Capital Investments increased its exposure to Leucadia National Corp. (NYSE:LUK) by 127,060 shares during the first quarter of 2016, lifting its holding to 907,616 shares. The increased stake was valued at $14.68 million on March 31 and accounted for 7.63% of PCI’s equity portfolio. Leucadia National, the parent company of securities and investment banking firm Jefferies, has seen its market value drop by 3% since the beginning of 2016. Aside from Jefferies, the diversified holding company also owns beef processing, oil and gas E&P (exploration and production), and fixed wireless broadband services businesses. First quarter revenue from the company’s beef processing business, which accounted for 81% of net revenue, decreased to $1.63 billion from $1.86 billion year-over-year, due to lower average selling prices for boxed beef and other products. Meanwhile, Jefferies net revenue dropped to $300.79 million from $591.44 million as a result of the extremely volatile market environment. Murray Stahl’s Horizon Asset Management reported ownership of 1.03 million shares of Leucadia National Corp. (NYSE:LUK) in its 13F for the March quarter.

#4. Five Below Inc. (NASDAQ:FIVE)

 – Number of shares held by PCI (as of March 31): 515,404

 – Value of PCI’s holding (as of March 31): $21.31 Million

Mr. Leonard’s firm trimmed its position in Five Below Inc. (NASDAQ:FIVE) by 11,250 shares during the January-to-March period, ending the first quarter with 515,404 shares of the company valued at $21.31 million. The shares of the specialty value retailer are up by 25% since the start of the year and trade at a hefty P/E multiple of 25.2, which is above the ratio of 18.0 for the Nasdaq 100 Index. Nonetheless, analysts at Credit Suisse recently resumed coverage on Five Below with an ‘Outperform’ rating and a price target of $47, saying the discount retailer is “one of the most attractive growth stories in retail”. The company’s net sales for fiscal year 2015 ended January 30, 2016 totaled $832.00 million, up from $680.20 million recorded for fiscal year 2014. The fiscal year 2015 top-line growth was driven by higher non-comparable store sales, as a result of 71 new store openings during the fiscal year, and higher comparable-store sales. Columbus Circle Investors, managed by Clifford G. Fox, owns 882,453 shares of Five Below Inc. (NASDAQ:FIVE) as of March 31.

We’ll study Pacifica’s top three stock picks on the next page.