Buffett Disciple’s Automaker Bet Continues to Surge

With the dog days of summer upon us, the U.S. stock market ended the week pretty much where it started.

The S&P 500 fell 0.24% and the Dow Jones dropped 0.05%. The tech-heavy Nasdaq pulled back 0.16%, while the MSCI Emerging Markets Index managed to eke out a 0.83% gain.

Your most recent Smart Money Masters recommendation, Mohnish Pabrai’s Fiat Chrysler Automobiles N.V. (FCAU), soared yet another 10.02% during its third week in the portfolio. Wilbur Ross’ Navigator Holdings (NVGS) recovered 5.53%, while Prem Watsa’s BlackBerry (BBRY) nudged 2.73% higher.

With Fiat Chrysler up 27.54% in just the last three weeks, it’s worth reviewing the reasons for its strong performance.

First, there is the company’s impressive earnings growth. Fiat Chrysler expects earnings to jump almost 26% for the current year on the back of nearly 10% sales growth. Those are bullish forecasts for the automobile sector.

Second, Fiat Chrysler does a good job at underpromising and overdelivering to investors. The company has generated an average earnings surprise of about 23.5% over the past 12 months, beating analysts’ estimates in three of the previous four quarters. Fiat Chrysler also trades at a price-to-earnings (P/E) ratio of 6.48, making the stock a bargain at current levels.

Third, as I noted last week, Fiat Chrysler has jumped higher recently thanks to Chinese buyout interest, and the prospect of the company spinning out some of its valuable brands.

Portfolio Update

Four of your positions — PayPal Holdings (PYPL), Restaurant Brands International (QSR), Liberty Broadband Corporation (LBRDK) and now Fiat Chrysler (FCAU) — all boast double-digit-percentage gains.

Kraft Heinz (KHC), BlackBerry (BBRY), Restaurant Brands International (QSR), The Priceline Group (PCLN) and Costco (COST) are all trading below their 50-day moving averages and are currently HOLDs.

Sincerely,

Nicholas A. Vardy