Asset Class: International Stock (Sector: Consumer Discretionary / Industry: Automobiles)

Original Investment Thesis (8/2018): This is a cyclical company with low debt and a management that has been focused on unlocking shareholder value.  I like everything they have done over the past few years to clean up the financials and seemingly get lean and mean and extremely focused to compete in the car-building business. Cars are not going away anytime soon and this is a worldwide player with some incredible brands (Jeep, Ram, etc). 

Current Thoughts (9/22/2019): Long term holding.  Since my purchase, they’ve sold a parts company they held and have pursued some merger talks.  Their CEO (who has been a great leader for the company) died unexpectedly but was replaced with someone who seems to want to remain closely on the prior CEOs path (though not totally).  I continue to think they are moving everything in the right direction to 1) survive, and 2) compete very effectively in the automobile industry.

FCAU (Fiat Chrysler Automobiles NV) – Annual Reassessment

February 2019

I’ve owned this stock for about half a year and just completed my annual reassessment on it (using tools I’ve updated significantly since I purchased this stock).  I’ve attached a PDF that has my analysis in case anyone else might find it useful:

I purchased this stock back in August 2018 at $17.30. These are my thoughts after reviewing this when I completed my initial purchase in 2018:

PRO #1 – Second cheapest on Acquirer’s Multiple site today.
PRO #2 – Mohnish Pabrai has 30% of his money in it.
PRO #3 – Had rallied sharply in price in early 2018 (and was overbought @ $24ish) and had dropped back substantially (and was oversold @ $16ish). There was lots of bad news in the air when I am looking at this.

CON #1 – Has 46% Debt to Equity…and has been paying it down at a very rapid clip. Lowest of any automakers (even the Japanese ones).
CON #2 – I don’t like that it is foreign…or in Italy.

Admittedly I didn’t do a ton of research on this position. I’d read numerous articles/accounts on the stock from other investors (like Mohnish Pabrai for example). In a recent article, I had learned that he had sold the Ferrari spinoff and that even though the FIAT stock had appreciated considerably since he purchased it (at near a 1 forward PE…or something ridiculous like that) that he intended to hold the stock for a good while longer. He still considers it to be undervalued and a good investment and still maintains a large portion of his portfolio in it.

The longtime CEO Sergio Marchionne died unexpectedly in mid-2018. He was already retiring after completing his prior 5-year turnaround plan (and rising the entire company from the ashes back in the decade prior to that). He had just finished a pretty big investment day in late June outlining the next 4-5 year plan. He closed that day saying that Fiat/Chrysler had come from near extinction in 2004 and had just completed on target their last 5-year plan (which was a very ambitious plan by all accounts). He thought the team was capable of carrying on with or without him. It seemed to be more than lip service and along with his other remarks sparked confidence.

The turnaround was set up to pay off debt, divest not core assets (but at reasonable assets), keep core assets (for example they refused to sell Ferrari but instead spun it off), and to make the company a free cash flow machine (while raising EBIT margins). They largely succeeded on all fronts. The upcoming plan looks to continue this by continuing to invest in/grow highly profitable products (like Jeep and Ram trucks). They are divesting businesses that are not core to their overall plan (but only if the offers make it worthwhile).

All that said, the auto industry is not typically a great business. The returns are not typically great…but…this one is head and shoulders ahead of others. The question is are they good enough to make a bad business/industry worth holding. Warren’s thoughts are NO! When a good team meets a bad business the business wins!

So, I bought into this basically doing exactly what you are not supposed to do…buying something because someone else owns it or recommends it. I ran some initial analysis but only enough to support that thesis. But given my expanded tools analysis, I’d say it is not as appealing as I thought upon purchase. There is still plenty to like in this business and they are not going away. I think they will wind up being a great (and maybe the best) run auto manufacturer for some time to come. But is that industry where I want to be invested long term? I’m not positive the answer is yes. But there are worse places to be for sure.

I think for now I’ll probably hold onto this investment because I think it is undervalued at current prices (and I’ve run my analysis using extremely conservative estimates). That said if I find another company in another industry I will likely move out of this position in time (regardless of valuation). So, I’m not calling this a bad investment just not sure if it is the best investment for me to hold long term (due solely to the industry). Now, all that said…I think I beat the overall stock market by being invested in this stock. Complicated, this one is! — YODA I’m sharing my analysis here. If you have thoughts on it I’d love to hear them hit me up on Twitter @joeydean72

Published by deanorolls

Well, if I told you that you wouldn't need to go to my would you?!?!

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