My Top 2 Stocks: Portfolio Recovery Associates, Inc. (PRAA) and Biglari Holdings Inc (BH)

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Would you like fries with that?
My second large holding is, in many ways, similar — at least in the way it came into, and subsequently grew, in my portfolio.  In other ways, it is dramatically dissimilar. Biglari Holdings Inc (NYSE:BH) is the holding company run by Sardar Biglari. If you don’t readily recognize the name, it’s because the public listing was previously known as Midwestern iconic burger brand Steak ‘n Shake. Sardar Biglari started getting noticed in 2006 after first gaining control of restaurant chain Western Sizzlin, then forcing second target Friendly Ice Cream into the embrace of private equity. His subsequent quest for board representation at Steak ‘n Shake culminated in his eventual appointment as chairman and CEO in mid-2008.

I acquired most of my stake at this time at split-adjusted prices between $100 and $150 per share. Those were heady times as Biglari was drawing accolades as a “next Buffett.” Since then though, the cheering has muted. Certainly, Biglari Holdings Inc (NYSE:BH) oversaw a commendable turnaround at Steak ‘n Shake, converting the restaurateur into a cash-producing machine. However, later moves — including renaming the firm in his own image, consolidating his other business interests under this new corporate structure, and implementing a new, generous, compensation scheme arguably somewhat misaligned with outside shareholders — have induced howls of betrayal from many who previously heaped praise.

I like Biglari as a capital allocator with an eye for underperforming companies and a dogged determination to pester his targets into exasperated value creation — often through a corporate sale. His current target is Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) , where Biglari is the largest shareholder owning nearly 20% of the shares, and has already fought two proxy battles where he may have technically lost the vote, but he’s been rewarded by the company adopting many of his operational strategies to keep him at bay. The Cracker Barrel stake is worth $371 million, or more than half of Biglari Holdings Inc (NYSE:BH)’ $668 million enterprise value.

The value of inactivity
I envision doing nothing with my Portfolio Recovery Associates, Inc. (NASDAQ:PRAA) stock for a long time to come and would happily add shares at attractive prices. On the other hand, I’m not likely looking for additional Biglari Holdings Inc (NYSE:BH) shares unless the price is very low. Unlike Portfolio Recovery Associates, Inc. (NASDAQ:PRAA) management, who have a long history of sticking to their knitting, Biglari Holdings Inc (NYSE:BH), who has repeatedly referenced the company as a “jockey stock,” has provided evidence that he’ll look out for the jockey first and foremost. Given the jockey’s proclivity for self-enrichment, I’ll sell when I perceive the stock has run past intrinsic value, which represents a price above $480 today.

The article My Top 2 Stocks: Portfolio Recovery Associates and Biglari Holdings originally appeared on Fool.com and is written by Jim Gillies.

Jim Gillies owns shares of Portfolio Recovery Associates and Biglari Holdings. The Motley Fool recommends Cracker Barrel Old Country Store, Portfolio Recovery Associates, and Visa. The Motley Fool owns shares of MasterCard and Portfolio Recovery Associates.

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