Top 10 Stock Picks of Steve Leonard’s Pacifica Capital Investments

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In this article, we discuss the top 10 stock picks of Steve Leonard's Pacifica Capital Investments. If you want to skip our detailed analysis of these stocks, go directly to the Top 5 Stock Picks of Steve Leonard's Pacifica Capital Investments.

Steve Leonard is the managing principal and founder of Pacifica Capital Investments, having established the investment firm in 1998. Pacifica Capital Investments employs a value-based investment philosophy in public equities, holding a portfolio that is concentrated in well-managed companies. Leonard believes in holding stakes in businesses he understands well, and buying stocks when they are discounted as compared to the intrinsic value.

Steve Leonard graduated from UCLA in 1977, and entered the real estate profession. To benefit from the commercial real estate cycles, Leonard established Pacifica Holding Company in the early 1980s. He had a successful run in the commercial real estate sector for years, via market acquisitions and collaboration with private and institutional investors. When real estate prices started to spike, Leonard exited the market and established Pacifica Capital Investments.

At Pacifica Capital Investments, Leonard manages a portfolio worth over $309 million, as well as discretionary assets under management of more than $467 million. His Q3 portfolio is concentrated in the communications, information technology, finance, and consumer discretionary sectors. The largest holding in Pacifica Capital Investments’ portfolio as of September this year is Berkshire Hathaway Inc. (NYSE:BRK-B), which represents 20.86% of Leonard’s total 13F securities.

Top 10 Stock Picks of Steve Leonard's Pacifica Capital Investments
Top 10 Stock Picks of Steve Leonard's Pacifica Capital Investments

Steve Leonard of Pacifica Capital

The most notable stocks in Steve Leonard’s Q3 portfolio include Alphabet Inc. (NASDAQ:GOOG), Starbucks Corporation (NASDAQ:SBUX), Apple Inc. (NASDAQ:AAPL), and Wells Fargo & Company (NYSE:WFC), among others discussed in detail below.

Our Methodology

We used Steve Leonard’s Q3 portfolio to pick his top 10 stocks, and the list was compiled according to the value of each holding in the investment portfolio.

Top Stock Picks of Steve Leonard's Pacifica Capital Investments

10. Berkshire Hathaway Inc. (NYSE:BRK-A)

Pacifica Capital Investments’ Stake Value: $5,348,000

Percentage of Pacifica Capital Investments’ 13F Portfolio: 1.72%

Number of Hedge Fund Holders: N/A

Berkshire Hathaway Inc. (NYSE:BRK-A) is one of the top stock picks of Steve Leonard, with Pacifica Capital Investments owning a $5.3 million stake in the company, representing 1.72% of the firm’s Q3 portfolio. Berkshire Hathaway Inc. (NYSE:BRK-A) is a multinational conglomerate holding company headed by the Billionaire Warren Buffett, owning subsidiaries including Dairy Queen, Duracell, and Helzberg Diamonds, among multiple others. The Class A Berkshire Hathaway Inc. (NYSE:BRK-A) stock refers to the originally offered shares by the company, known for their high equity value and the extremely expensive price point.

As a result of the Q3 earnings miss and the persistent supply chain headwinds, Keefe Bruyette analyst Meyer Shields on November 7 kept a Market Perform rating on Berkshire Hathaway Inc. (NYSE:BRK-A) with a $485,000 price target.

As of the third quarter of 2021, the leading Berkshire Hathaway Inc. (NYSE:BRK-A) stakeholder is Bill & Melinda Gates Foundation Trust, with 38.6 million shares worth over $10.5 billion.

In addition to Alphabet Inc. (NASDAQ:GOOG), Starbucks Corporation (NASDAQ:SBUX), Apple Inc. (NASDAQ:AAPL), and Wells Fargo & Company (NYSE:WFC), Berkshire Hathaway Inc. (NYSE:BRK-A) is a notable stock in Steve Leonard’s Q3 portfolio.

Here is what Black Bear Value Partners has to say about Berkshire Hathaway Inc. (NYSE:BRK-A) in its Q3 2021 investor letter:

“Please see the Q1 letter for our Berkshire on a Napkin investment exercise. We have written on it extensively and will save your eyeballs from extraneous reading. Berkshire is very cheap for owning such high-quality businesses and will continue to grind higher and compound value for us.”

9. CNA Financial Corporation (NYSE:CNA)

Pacifica Capital Investments’ Stake Value: $6,536,000

Percentage of Pacifica Capital Investments’ 13F Portfolio: 2.11%

Number of Hedge Fund Holders: 12

CNA Financial Corporation (NYSE:CNA) is an insurance company that offers property and casualty insurance products and services for corporate clients in the U.S., Canada, Europe, and Asia. As of Q3 2021, Pacifica Capital Investments holds 155,762 shares in CNA Financial Corporation (NYSE:CNA), worth $6.53 million, representing 2.11% of the firm’s Q3 investments.

CNA Financial Corporation (NYSE:CNA) on November 1 declared a cash dividend of $0.38 per share, payable on December 2 to shareholders on record as of November 15. The company also reported a Q3 EPS of $0.87, beating estimated EPS of $0.60 by $0.27.

As of the third quarter of 2021, 12 hedge funds were bullish on CNA Financial Corporation (NYSE:CNA), down from 13 funds in the preceding quarter. The total stake value reported by these hedge funds in Q3 was $63.8 million. Arrowstreet Capital is the leading stakeholder in CNA Financial Corporation (NYSE:CNA) as per Insider Monkey’s records, with 778,221 shares valued at $32.6 million.

8. Alliance Data Systems Corporation (NYSE:ADS)

Pacifica Capital Investments’ Stake Value: $13,801,000

Percentage of Pacifica Capital Investments’ 13F Portfolio: 4.45%

Number of Hedge Fund Holders: 31

Alliance Data Systems Corporation (NYSE:ADS) is an Ohio-based company offering private label credit cards, direct marketing services, and loyalty programs. Pacifica Capital Investments owns a $13.8 million stake in Alliance Data Systems Corporation (NYSE:ADS) as of September this year, which accounts for 4.45% of the firm’s Q3 portfolio.

The leading Alliance Data Systems Corporation (NYSE:ADS) stakeholder is Palestra Capital Management, with 3.5 million shares worth $354.5 million. Overall, 31 hedge funds in the database of Insider Monkey were long Alliance Data Systems Corporation (NYSE:ADS), with a total stake value of $1.11 billion.

Alliance Data Systems Corporation (NYSE:ADS) posted its Q3 results on October 28. EPS in the period totaled $4.47, beating analysts’ estimates of $3.29 by $1.18. The $1.10 billion revenue also exceeded estimates by $12.94 million.

Truist analyst Andrew Jeffrey on November 1 lowered the price target on Alliance Data Systems Corporation (NYSE:ADS) to $115 from $130 and kept a Buy rating on the shares, following the solid Q3 results.

Here is what Alphyn Capital Management has to say about Alliance Data Systems Corporation (NYSE:ADS) in their Q4 2020 investor letter:

“My investment in Alliance Data Systems was a mistake, as mentioned in my Q1 letter. I allowed myself to be drawn to management’s narrative and was not critical enough of their excuses for poor performance. I was also heavily influenced by the notion that the valuation appeared cheap on a price-to-free cash flow basis. As I should have better remembered from my investment banking days in the early 2000’s when I was involved with IPOs, the stock market seeks growth and does not attribute high terminal value to stagnating companies, especially when management teams have lost the market’s confidence. While this seems obvious in hindsight, the lesson is to act more decisively in cutting a “bad” position in the future.”

7. Nordstrom, Inc. (NYSE:JWN)

Pacifica Capital Investments’ Stake Value: $14,791,000

Percentage of Pacifica Capital Investments’ 13F Portfolio: 4.77%

Number of Hedge Fund Holders: 25

Nordstrom, Inc. (NYSE:JWN) is an American luxury department store chain, offering clothing, footwear, accessories, cosmetics, home goods, and fragrances. Steve Leonard, via Pacifica Capital Investments, holds 559,211 shares in Nordstrom, Inc. (NYSE:JWN) as of September 2021, valued at $14.7 million, representing 4.77% of the firm’s Q3 portfolio.

As of Q3 2021, 25 hedge funds in the database of Insider Monkey’s 867 elite funds were bullish on Nordstrom, Inc. (NYSE:JWN), down from 31 in the previous quarter. Brett Barakett’s Tremblant Capital is the leading Nordstrom, Inc. (NYSE:JWN) stakeholder, with 4.44 million shares worth $117.6 million.

Citi analyst Paul Lejuez lowered the price target on Nordstrom, Inc. (NYSE:JWN) to $31 from $39 on October 22, keeping a Neutral rating on the shares.

6. Alibaba Group Holding Limited (NYSE:BABA)

Pacifica Capital Investments’ Stake Value: $18,748,000

Percentage of Pacifica Capital Investments’ 13F Portfolio: 6.05%

Number of Hedge Fund Holders: 115

Alibaba Group Holding Limited (NYSE:BABA), a Chinese multinational e-commerce corporation, is one of Steve Leonard’s top stock picks as of September 2021. Leonard’s Pacifica Capital Investments owns 126,632 shares in Alibaba Group Holding Limited (NYSE:BABA), valued at $18.7 million, representing 6.05% of the firm’s Q3 portfolio.

Alibaba Group Holding Limited (NYSE:BABA) posted its Q3 results on November 18. EPS in the period equaled $1.75, missing estimates by -$0.19. The $31.43 billion revenue also missed analysts’ consensus estimates by -$638.61 million. Benchmark analyst Fawne Jiang, on November 19, lowered the price target on Alibaba Group Holding Limited (NYSE:BABA) to $245 from $270 and kept a Buy rating on the shares post the Q3 earnings.

Fisher Asset Management is the biggest Alibaba Group Holding Limited (NYSE:BABA) stakeholder as of September this year, with a position worth over $2.1 billion. Overall, 115 hedge funds in Insider Monkey’s database of elite funds reported owning stakes valued at $10.2 billion in Alibaba Group Holding Limited (NYSE:BABA).

In addition to Alphabet Inc. (NASDAQ:GOOG), Starbucks Corporation (NASDAQ:SBUX), Apple Inc. (NASDAQ:AAPL), and Wells Fargo & Company (NYSE:WFC), Alibaba Group Holding Limited (NYSE:BABA) is a notable stock in Steve Leonard’s Q3 portfolio.

Here is what Polen Global Growth has to say about Alibaba Group Holding Limited (NYSE:BABA) in its Q3 2021 investor letter:

“First, on managing risk. We have held positions in Alibaba since the inception of the Polen Global Growth Portfolio in 2015, and it has performed very well during that period. We invested via the variable interest entity (VIE) structure, given that it is the only channel for foreign capital to invest in the company. Investing in a VIE involves a contract for ownership in a business (that cannot be owned by non-Chinese investors), rather than direct equity ownership, as we have in all other businesses in the Portfolio. The Chinese government has never explicitly endorsed nor condemned the VIE structure, so a certain amount of risk remains.

From our point of view, China has always had the capability to appropriate businesses from foreign owners but had not demonstrated the will to do so. We felt that changed when the Chinese government enacted a series of regulatory policies that turned for-profit, after-school tutoring companies into non-profit entities. While a logical argument could be made that such actions are not likely to bleed over into China’s tech sector, we think increased regulation and the potential for government-directed capital allocation from these businesses could lead to lower-than expected earnings growth.

To be clear, we are not “making a call” on China. We believe that the risk of such draconian regulation of China’s tech sector is unlikely. That said, given our global opportunity set, we decided to reallocate capital into businesses likely to produce similar earnings growth over the next five years with a greater degree of certainty. We still believe that Alibaba is a great business and could be owners of one or both in the future, but we felt there were easier ways to achieve our objective at the present time.”

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Disclosure: None. Top 10 Stock Picks of Steve Leonard's Pacifica Capital Investments is originally published on Insider Monkey.

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