MOHNISH PABRAI & PREM WATSA PORTFOLIO: DEEP VALUE BIG BUY?

It's that time again, where if you manage over $100 million, you're required to file with the SEC, what you've been up to. So recently two of my favorite super investors, we're talking about Monish Pabrai and Prem Watsa. They have reported their latest investment updates as of September 30th. So there is a little bit of a lag, but if you're a value investor with a lot of, you know, without a lot of turnover, maybe there is more of a signal in terms of what they're doing that might be helpful for you when we look at Monish Pabrai's investments via Dalal Street, uh, you see that he had a huge new purchase in console energy CEIX is the ticker. He increased the position by 300% plus that said he also added to warrior met coal, uh, AMR as well. I've d I did a video on AMR previously. He cut his position in arch resources by 92%. So we're going to talk about, you know, what's he doing here because this seems like a sizable new purchase for Monish Pabrai. This is via the Dalal Street portfolio, which, you know, the, the value of this portfolio is around a couple hundred million dollars. So that does suggest that he does have a lot of international holdings as well, because I think all in it's closer to a billion dollars. So there is a lot of international that you're not seeing here. So what is console energy? Because I'm not really familiar with the story here. I go to AI ticker chat just to get a summary. And you know, you're talking about the production and marketing of coal primarily for power generation. You're talking about thermal coal, and it's also leveraging their facilities, their infrastructure to sell it into an international market. They have a port, they have the Marine terminal located in the port of Baltimore. So critical assets, not only the, the mines themselves, but also the assets to sell them. And you can see that it's getting sold both on a domestic energy basis for domestic power generation, as well as an international markets, 10% alone is for it appears to be exporting for power generation. So you can see power generation is very clearly a big part. International demand is, you know, picked up over time for coal, even though we think, you know, look, coal is it's a dirty energy, which it is, and that it's getting phased out in the U S over time. But internationally folks are looking for what's the lowest cost energy source. So you still have that as a sizable demand and looking at the business profile, you know, I truthfully do not like commodity companies because you're reliant on what's the, you know, demand supply picture look like that drives your type of returns. But looking at this business, you see, you know, a lot of free cashflow over time, most recently around 300, 400, you know, $700 million in free cashflow in 2023. And they've, you know, have effectively repurchased a lot of shares going from 35 million in shares just two years ago to a little under 30 million. And, you know, their debt profile has also significantly been reduced. So repaying a lot of their debt with their free cashflow. So making this business a lot more secure. And I think part of the reason why Pabrai is extra interested in console energy is their deal with arch resources to this, a merger that'll create a five, $6 billion mining giant. When I look at the terms of this deal, this is going to create a North American coal King where they're saying, look, we are consolidating our North American base to sell into a global customer base. They think this will be immediately creative within the first full year following the close where they're going to be saving, you know, over a hundred million dollars in terms of annual costs and that pro forma, this combined new entity, looking at console and arch combined creating a new company called core natural resources could generate $1.4 billion in free cashflow without even factoring in the a hundred million dollars in cash savings. So you're talking about just incredible amounts of free cashflow that this will generate. And these two arch and console are the best safety records and lowest incidents, right? So arguably one of the best free cashflow profiles and also the best from a qualitative perspective in terms of, you know, employee safety and incidents. And so thinking about this deal structure, because this is a stock only deal, they're not borrowing a lot of money to do it. What's happening is the arch shareholders are getting 1.3 shares of console shares. So if you're a console share owner, it'll convert and under a new ticker in the future. And if you're an arch shareholder, you're going to get these console shares. So it's all going to change, I believe to core natural resources. But the way to think about it is it has around 54 million shares and you can price it based on consoles, current share price because console owner on 55% of this diluted company. So console around $123 current share price based on that 54 million shares 54 million shares, that's around $6.6 billion market cap versus that 1.4 billion in free cashflow. So you're talking about really low free cashflow multiple four to five times free cashflow for an asset that has a reasonable runway in terms of production capacity. I'd want to look further into that, but it's immediately obvious why Pabrai is into this. He's looking at this and he's saying, Hey, where else can I get an asset? Where else can I get a stock where you have demand increasing on an international front and you're getting four to five times free cashflow and arguably a lot of that free cashflow is going to you as a shareholder. You know, if you're, if they were repay all of this to shareholders, you're getting a 20 to 25% yield. So that's obviously, you know, very enticing and given that they don't have a lot of debt and they've repaid a lot of their debt, you can say, yeah, a lot of that cashflow is indeed going to go to shareholders. Looking at Pabrai's other investment vehicles, he has this wagon funds. You know, he, this includes the, it looks like an airport investment in Turkey and Adelweiss financial services in India. And so I, you know, I really don't know much about these two entities, but it's very clear that he's not only investing console and the Colbets in his private investment vehicles, but it's also available in his publicly traded vehicles via his, his wagon funds. So you can see it's a sizable part of the portfolio here as well. So that's an interesting, interesting portfolio to see what Pabrai's up to this sizable Colbet really does get my interest. Okay. So what about Prem Watsa? Uh, you know, he is one of the key, key key leaders of Fairfax financial driving incredible returns, 20% roughly annualized, you know, growth. It's, it's like 18%, 19% over a multi-decade perspective. So what's he up to? So he's a incredible value investor. Yes, he's made some mistakes, but as do we all, and in full disclosure, I own a stake in Fairfax, and this is not financial advice. I've done a couple of videos on Fairfax financial as well, which you can check out. Also quick plug earlier this week, Matthew E a premium member of the unrivaled investing community shared the following. This is a direct quote saying it's worth every penny Netflix, Spotify, and unrivaled are the only subscriptions I'll never cancel an incredible value. You've helped me and my wife comfortably take time away from work to travel. And I had the financial confidence to start a business of my own, even without any income for two years, my portfolio is still up. He's talking about unrivaled investing prices are going up at the end of this month. So now is the time to lock in the favorable rates. Come check it out for compelling investment ideas at unrivaled investing, looking at prem Watson, the Fairfax portfolio. This is the publicly traded us stocks. It's around a $1 billion portfolio, which is worth noting in and of itself because Fairfax has a $69, $70 billion investment portfolio. So it does show you that most of their value is currently, you know, most, most of where they're finding safety and investments that they want to do are either international markets where they have some sizable bets or private equity bets. Uh, but they're not really seeing tremendous value in us public markets because it's only 1 billion out of a $70 billion portfolio. So that's worth understanding. Yes. A lot of their portfolios and treasury bonds, but still, uh, it's not a huge amount looking at what they've been up to. What have they been buying? I see Orla mining is a 20% position relative to this billion dollar portfolio. They increased a bit Under Armour, Kraft Heinz. You know, I'm less inclined to look at something like Under Armour. I've done videos on, you know, companies like Nike before. It's, it's a little tough for me. Maybe, maybe it's a great bet. Kraft Heinz, you're talking probably about a very stable consumer discretionary or consumer staple, uh, that, you know, you're probably getting at a reasonable multiple to free cashflow either way. These aren't, I'd argue like mega bets, the Occidental Petroleum and Orla, that's nearly half of the portfolio, uh, 48%. So clearly a lot going into these two. So that's worth understanding. Occidental that's, you know, Warren Buffett's bet on, you know, oil. Uh, I've talked about that previously. Orla has sold off roughly 20% in just the last few days. So that's probably worth, you know, digging into further. So once again, I go to AI ticker chat. Quick summary is that it's a dynamic growth oriented mining company focusing on gold and silver. And you know, I ask chat and by the way, chat is now completely free to use. So come check that out. I asked chat like, Hey, where does most of their production come from? Because that, you know, that obviously has a big impact if you're looking at a production company and it's like, Oh yeah, all of our, all of our resources are in this very suspect country where any given day, some dictator is going to take it away. You know, if the commodity price goes up enough, yeah, that obviously changes the valuation multiple. Um, you know, one of my first stocks that I bought was, uh, a company that had oil facilities in Gabon, Africa. And I just was like, okay. You know, I, I wasn't thinking, I mean, it was part of my learning and my journey process of, of, of learning. Okay. Maybe there's a reason Warren Buffett's buying Occidental Petroleum, which is predominantly has their, their resources in North America and the United States. So looking at Orla, uh, looking at where, where's their production coming from? It looks like it's coming from, uh, Zacatecas, Zacatecas state, Mexico. I apologize for the, uh, the, the butchery of my pronunciation, but they are looking to develop some facilities, some open pit gold pro uh, projects in Nevada as well. So you're talking about Mexico and Nevada, but predominantly it looks like their, their primary production right now is in Mexico. And so looking at Orla, you've gone from a, you know, reasonable amount of debt to a net cash position. So I like personally like to see this. This means it's a lot harder to go bankrupt when you're in a net cash position. Uh, you know, that's who, who's going to be a senior claim to you. It's, it's the shareholders predominantly. And then looking at the free cashflow of this business, most recent quarter generating around $45 million. So annualize that you're talking about around 180 million free cashflow versus around a hundred, a $1.2 billion market cap. That's the current price. So around six times free cashflow with optionality that their new investments, their new, you know, mining facilities could increase their free cashflow plus higher gold prices potentially. And you know, once again, I could see why value investors like Monish Pabrai bought console, penciling out four to five times free cashflow. Why a prem Watts at Fairfax, another value investor. They're both deep value investors. They're buying these commodity companies that are trading at low multiples, very low multiples to free cashflow. In this case, it's six times maybe a lot lower based on the growth initiatives. And so it's really a question of, do you think those underlying commodity prices will be much lower in the future? And so I think that might be the lesson, you know, from the, the takeaway from seeing the signal from seeing this, you've had Warren Buffett net seller of stocks this year, primarily via Apple, a hundred billion dollar plus sale, you know, but one of the things he did buy was occidental. Okay. So that's oil. You see Monish Pabrai, his huge bet, his big bet. What is it on? It's on a variety of different coal companies. One of which is going through a merger that, you know, if, if coal prices are just stable, uh, then you're talking about very low multiples to free cashflow. Prem, Watsa, another commodity, you know, bet. These are all deep value guys. They all understand, you know, how to make and find exceptional companies, but they're all opting for, I'd argue the commodity play. So what, what is the signal with that? Is that, you know, with, with Orla it's, it's gold and silver and you know, that's Prem Watsa's bet. Plus he also owns occidental. So I, I look at this and this is, you know, maybe this is really a signal that they're expecting inflation to pick up in, you know, the quarters and years ahead. It's, it's driven by a, you know, bottoms up thesis of saying, Hey, I want to find these great, you know, solid commodity producers, the low cost commodity producers, the safest commodity producers. And let's start with that and buy it a cheap multiple. And if I do get a highly inflationary environment, let's say like the 1970s, then these things can do incredibly well. So you have this sort of asymmetry of, if you have a return to sort of the stagflation that we had previously. And that's, that is a concern. Some folks are talking about where you have a new growth sort of shock with the new president and, you know, in an aligned Congress, maybe you have a lot of stimulus, maybe not. Maybe, maybe you have a Elon Musk and doge. I'm just sort of sharing the thesis of, you know, you could have a lot of stimulus, but then it's cut back with, with you know, government reductions and we'll, we'll see how that plays out. I'm, I'm hopeful, but we'll see. But I think broadly the signal from these investors is that they're finding more value in the commodity plays with the prospect that, Hey, if there is some sort of inflationary issue or some sort of us treasury debt issue where, you know, the, if, if let's say you have a situation where the treasury markets have a failed auction, because there's so much supply of treasuries that they're trying to sell and there's not enough buyers. And all of a sudden they say, you know, we, we failed to have an auction. Then you have this sort of situation where, well, you can't have interest rates go to, let's say 10, 20% because for a highly levered economy, it would be very disruptive. So you'd then have, let's say the federal reserve say, Oh no, no, no, it's going to be fine. There's actually some hidden demand show showed up. And it would really be the federal reserve buying it. And by the way, that's, you know, I, I learned that from, from reading a book on called broken money, where, you know, they're, they're talking about Bitcoin, which is interesting, but the, the, the historical example from broken money that they shared that I thought was really great was during, I think it was during world war two Britain had this huge effectively failed auction in terms of government bonds. And then they said, Oh no, no, it was oversubscribed. We had, we had so many buyers, but it was just the central bank, you know, like buying, buying their bonds, monetizing it, printing money. And so if you have this situation where the U S gets into a failed auction type of situation, and then the central bank is forced to start printing money to sort of, you know, calm the markets, you can't have 10, 20% interest rates. Cause then, then a lot of people start going bust, you know, then the only one who's playing is Warren Buffett with his $300 billion cash. And he's going, this is great. I'm buying everything at five times, you know, free cashflow. And that's arguably, that's not a world that I think a lot of people are happy in. Um, so I, this is, I think this is an interesting call, you know, looking at what these deep value investors are buying, what the potential signal is. I'd love to hear your thoughts below. If you've enjoyed this educational investment video, you've been watching unrivaled investing. My name is Daniel. Thanks so much for tuning in.