Mohnish Pabrai’s Top Stock Picks

MOHNISH PABRAIMohnish Pabrai once paid over half a million dollars for lunch with Warren Buffett. Buffett is his favorite investor, and in his own funds he has tried to approach investing and client management in the same way that Berkshire Hathaway did when it first started out. After poor performance in 2008, he more than doubled his investors’ money in 2009. His investment fund recently filed its 13F, which discloses some of the stocks that it owned at the end of September. Read on for our quick take on his largest positions and compare them to what he has owned in the past; note that in recent quarters he has tended to reduce the number of holdings in his portfolio.

Pabrai’s top two picks at the end of the third quarter were the same as his two favorite stocks from three months earlier: Bank of America Corp (NYSE:BAC) and Citigroup Inc. (NYSE:C). His stake in each of these big banks was essentially unchanged. Even with their share prices well up on the year, Bank of America and Citi trade much lower than the book values of their equity: Bank of America’s P/B is 0.5 and Citi’s is 0.6. To some degree this makes sense as the global financial system hasn’t fully stabilized (particularly in Europe), these two banks are arguably too broad and unfocused to manage their assets effectively, and on an earnings basis they’re more in line with their peers at 8-10 times forward earnings estimates. We can see the value opportunity here, and can understand why an investor might like either of these two, but with the revenue and earnings at each declining at least 25% last quarter compared to the third quarter of 2011 it’s probably better to look at a more stable and only slightly more expensive megabank like JPMorgan Chase or even Wells Fargo.

Pabrai’s fund had initiated a position in Chesapeake Energy Corporation (NYSE:CHK) during the second quarter, and over the course of the third quarter had roughly tripled the number of shares in its portfolio to almost 3 million. Chesapeake had some problems earlier this year when it was revealed that the CEO had been engaged in improper business practices, and short sellers drove the stock down as it became clear that the company would need to sell assets- potentially at fire sale prices- to bring in enough cash for the year. With activist investor Carl Icahn getting behind Chesapeake, however, it has started to recover and now trades at 13 times forward earnings estimates. Read our recent discussion of billionaire Carl Icahn’s investment in Chesapeake.

General Motors Company (NYSE:GM), an increasingly trendy value stock, was another of the holdings in Pabrai’s portfolio. Billionaire David Einhorn of Greenlight Capital recommended it as one of his two long picks at the Value Investing Congress (here’s why billionaire Einhorn isn’t giving up on GM), and Wall Street analysts are very optimistic about the automaker as their earnings trajectory implies a forward P/E of only 7 and a five-year PEG ratio of 0.7 (stocks with a PEG ratio below 1 are interpreted to have an expected growth rate that justifies their current P/E multiple). While we wouldn’t be short the stock we think that there are a number of good value opportunities in the auto industry that aren’t as risky as GM.

Pabrai sold shares of Goldman Sachs Group, Inc. (NYSE:GS), with the roughly 200,000 shares in his portfolio at the end of September down from about 500,000 shares three months earlier, but his fund remained a shareholder. Goldman looks like a classic Buffett pick: it has an impeccable brand name (at least among its potential customers, though not with the general public) and yet trades at a discount to book value (the P/B ratio is 0.8) and at quite modest P/E multiples. The trailing and forward P/Es here are 11 and 9, respectively, with analysts expecting strong medium-term growth. We think that the stock is worth a closer look.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!