Mohnish Pabrai's 8 Top Fund Holdings

by: Brian Gorban

There are many indicators I use when analyzing a stock. One is unusual option activity. Another indicator I look for are relatively cheap dividend stocks. Finally, another indicator is insider activity, such as the ones described here. Moreover, following recent transactions of very well-run investment firms, such as Pabrai Investment Funds, is a great way to get some ideas.

Mohnish Pabrai simply started with $100,000 of his own money and got nine other investors each contributing the same amount in 1999 to start his fund with $1M in assets under management. Since that time, his performance has been nothing short of phenomenal with an annualized 14.3% annual return net of fees since Oct. 1, 2000 through Sept. 30, 2011, while the S&P 500 has annually returned -.3% during that long length of time. His outperformance of the S&P 500 by over 1450 basis points is simply outstanding and easily puts him in the top 1% of all fund managers during that length of time. Moreover, assets under management have grown to just under $500M showing that a lot of people are starting to trust his judgment. Count me among those people.

Looking at his largest holdings can give us some clues as to where he sees value.

Potash Corporation of Saskatchewan (NYSE:POT) produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. His funds held just under 1M shares according to his most recent filing, making this their largest holding and approximately 10% of the total assets under management. Pabrai seems to see great value in this stock and I can see why as this has been a great play on the growing world population who need to eat and hence the increased use of fertilizer. The valuations are decent at trailing 18.5x P/E, forward 12x P/E, 1.2x PEG, and a very strong ROA and ROE of 13% and 34% respectively. Moreover, BHP earlier in the year offered a split-adjusted $46.67 all-cash purchase price, which was widely viewed as undervaluing the company. If anything that should create somewhat of a floor and I'd be a holder of POT at these levels.

Brookfield Infrastructure Partners L.P. (NYSE:BIP) operates in utilities, transport and energy, and timber sectors. This is another large holding with 1.769M shares being held in his funds according to his most recent filing. The company looks decently priced at a trailing 6.6x P/E, 18x forward P/E, 1.1x P/B, and very nice and rising 5.6% dividend yield. I'd be a buyer for the great yield alone, but then add in the inflation-linked assets and free international exposure, I can see why he is a buyer. Please note that this stock has special tax ramifications as it is a partnership and based out of the USA.

Brookfield Properties (NYSE:BPO) is a publicly owned real estate investment firm. Pabrai is holding 2.359M shares according to his most recent filing and I can see why, as it has just a trailing 4.5x P/E, forward 14.6x P/E, .9x P/B, and consistent 3.7% dividend yield. This is a quality holding and I think a good buy at these levels.

The Goldman Sachs Group (NYSE:GS), together with its subsidiaries, provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Pabrai owns 230,835 shares according to his most recent filing and this has been volatile with the continual EU and Greece fears trading at trailing 17.7x P/E, forward 8.6x P/E, .8x P/B, and consistent 1.4% dividend yield. This company doesn't often trade less than book, much less .8x, and when I see how this is arguably the best management financial firm, I think this is a great buy at these levels.

CapitalSource (NYSE:CSE), a specialized finance company, provides various financial products to small and medium-sized businesses in the United States. Pabrai owns 2.8M shares according to his most recent filing and I see some value as it trades at a trailing 21x P/E, 14.6x forward P/E, 1x P/B, and relatively strong 1.04% ROA and 5.09% ROE. While the yield is rather small at .6%, look for it to be raised soon as it is just a 13% payout ratio and when that happens the company should continue to move higher. I'd be a buyer here.

Horsehead Holding (ZINC), together with its subsidiaries, produces and sells specialty zinc and zinc-based products in North America. Pabrai holds 1.35M shares according to his most recent filing and I see value with this commodities stock trading at trailing 17x P/E, forward 11x P/E, 1x P/B, .6x EV/S, and fantastic balance sheet with essentially no debt and approximately $3/share in net cash. I think this is a great buy at these levels.

Wells Fargo & Company (NYSE:WFC), through its subsidiaries, provides retail, commercial, and corporate banking services primarily in the United States. Pabrai held just under 375,000 shares according to his most recent filing for this well-known bank which has had a nice run of late. However it still trades just over 1x P/B, trailing 10x P/E, forward 8x P/E, .7x PEG, a very nice comparative ROA and ROE of 1.23% and 11.74% respectively, and growing 1.8% dividend yield. I still think this is a great buy.

Cresud (NASDAQ:CRESY) engages in the production of basic agricultural commodities in Brazil and other Latin American countries. Pabrai owns just under 1.3M shares according to his most recent filing and this Argentinean firm looks attractively priced at a trailing 13.5x P/E, forward 17.9x P/E, .7x PEG, 1x P/S, and 1.1x P/B. Add in the approximate annual dividend of 2.9% and I think this is a buy.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GS, POT, BIP over the next 72 hours.