Strategic Reallocation: Makaira Shifts from CarMax to High-Penetration Sectors

Makaira Partners has completed a decisive portfolio shift, fully exiting its CarMax position. The firm sold its entire $18.3 million CarMax stake in Q3 2025, a move that drove a steep 41% quarter-over-quarter contraction in reportable assets under management. This retreat from CarMax coincided with the company's significant stock decline, down 56% year-to-date and underperforming the S&P 500 by 68.3 percentage points, a challenging period the CEO attributed to tough market conditions.

The capital freed from the CarMax exit has been redeployed into new high-penetration sector holdings. Charter Communications now dominates the portfolio at 23% of AUM, followed by Bath & Body Works at 18% and Lamar Advertising at 10.7%. This redirection marks a clear change in sector focus for Makaira following the CarMax divestiture.

CarMax's Performance Degradation and Value Compression

Investment manager Makaira Partners recently exited its $18.3 million position in CarMax, trimming its portfolio by 41% in Q3 2025 amid broader market skepticism. The move follows a sharp 56% year-to-date stock plunge, underperforming the S&P 500 by 68.3 percentage points-a stark warning signal for investors as CEO-championed strategies collide with macroeconomic headwinds.

Valuation metrics reflect mounting pressure. CarMax's trailing P/E ratio has collapsed from 25.85 in February 2025 to 10.82 by November, the lowest in two years, even as its $26.4 billion revenue base underscores scale. While this valuation now appears attractive versus peers AutoZone (P/E 27.25) and O'Reilly Automotive (P/E 34.75), the compression stems from deteriorating fundamentals rather than bargain hunting.

Revenue size alone cannot offset concerns over earnings sustainability. With no clarity on Q3 results or 2026 debt maturity risks, the stock's collapse suggests market skepticism about near-term profitability. Investors should watch for whether CarMax's operational adjustments can reverse the downward trajectory before deeper value erosion sets in.

The P/E's volatility also hints at broader sectoral strains. While CarMax's pricing now looks "cheap," the drop aligns with declining consumer confidence in discretionary spending-a dynamic that could linger if interest rates remain elevated. Without evidence of stabilized margins or market share gains, the stock's appeal remains conditional on future execution.

According to financial data, CarMax's trailing P/E ratio has collapsed from 25.85 in February 2025 to 10.82 by November.

Strategic Rationale: Penetration Rate and Growth Thesis Validation

Makaira Partners' latest portfolio adjustments reveal a sharpened focus on high-penetration sectors, validating its core growth thesis. The $423 million hedge fund continues to prioritize "established companies with sustainable competitive advantages at discounts to intrinsic value" per its Q3 2025 13F filing. This approach manifests in an extremely concentrated top 10 holdings portfolio representing 99.48% of assets, with Charter Communications Inc. as its largest position.

The strategy contrasts sharply with Makaira's recent underperformance in traditional retail segments like CarMax, where the company's brick-and-mortar model faces persistent pressure from e-commerce disruption. Instead, the fund's new positions are demonstrating accelerating market penetration in digital infrastructure and communication services. Charter Communications exemplifies this shift - its fiber network expansion is gaining traction in underserved markets, evidenced by subscriber growth exceeding industry averages.

This sector rotation aligns with Makaira's fundamental thesis that companies with durable moats in essential services (like broadband) will maintain pricing power even during economic headwinds. The concentration strategy amplifies exposure to these high-penetration champions, though it creates elevated risk if any top holding encounters operational setbacks. While sector rotation shows promise, the portfolio's near-total dependence on just ten companies means performance will remain highly sensitive to single-stock outcomes. Investors should monitor whether new positions can sustain momentum to justify maintaining such concentrated exposure.

Risk Assessment: Portfolio Concentration and Sector Rotation Trade-offs

This section assesses the portfolio risks tied to Makaira's concentrated investment approach. The fund's top 10 holdings make up 99.48% of its portfolio, a level of concentration that raises significant risk concerns despite the firm's stated focus on quality companies.

Makaira emphasizes investing in established firms with sustainable competitive advantages, aiming to minimize capital risk through fundamental analysis and buying stocks below intrinsic value. However, this high concentration amplifies vulnerability to stock-specific shocks or misjudgments. For instance, if a large holding underperforms, the impact on the entire portfolio could be severe.

While the strategy may offer upside by targeting undervalued assets, the lack of sector diversification data means we can't fully evaluate how broad market shifts might affect the fund. This absence limits our ability to gauge mitigation against systemic risks, leaving investors exposed to potential losses if the concentrated bets don't pan out.

Makaira’s decision to divest from CarMax and reallocate capital into high-growth sectors like digital infrastructure and communications reflects a calculated risk. Charter Communications, which now holds the largest stake, has demonstrated strong subscriber growth and infrastructure expansion, aligning with the firm’s long-term growth thesis. However, the absence of diversification means that any volatility or earnings miss in these top holdings could disproportionately affect the portfolio’s performance.

This volatility is further underscored by CarMax’s recent price action. Investors should watch closely for any signs of stabilization or further erosion in the stock’s fundamentals, as its performance could serve as a bellwether for broader consumer sentiment and sectoral health.