Pabrai Funds' Most Recent Investment Activity

Includes: ATSG, BAC, GS, HNR, PKX, WFC
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 that 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 -0.3% 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 most recent investment activity can give us some great insight into possibly some great holdings we can buy as well.

Bank of America (NYSE:BAC), through its subsidiaries, provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments worldwide. This became not only a new holding in Pabrai funds, but the largest as they collectively own 7.053M shares. I noted recently the strong options activity in BAC recently here and the stock has some attractive valuations trading at .8x P/S, .3x P/B, and a forward 6x P/E. However, with the continued uncertainty with the mortgage mess and Europe, I'm staying away from what has so far been value traps. BAC gets real interesting under $5/share, but for now, I'm still staying away.

Wells Fargo & Company (NYSE:WFC), through its subsidiaries, provides retail, commercial, and corporate banking services primarily in the United States. Pabrai more than tripled his position to 1.225M shares in this best of breed bank. Moreover, it trades at just over 1x P/B, trailing 9x P/E, forward 7x P/E, .7x PEG, a very nice comparative ROA and ROE of 1.23% and 11.74% respectively, and growing 1.9% dividend yield. I still think is one of the better banks to buy.

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 added just under 60,000 shares to his position bringing total ownership to 289,933. GS has been volatile with the continual EU and Greece fears trading at trailing 14x P/E, forward 6.5x P/E, .7x P/B, and consistent 1.5% dividend yield. This company doesn't often trade less than book, much less .7x, and when I see how this is arguably the best management financial firm, I think this is a great buy at these levels.

Air Transport Services Group (NASDAQ:ATSG), through its subsidiaries, provides aircraft for lease, airline operations, and other related services primarily to the shipping and transportation industries. Pabrai sold almost 90% of his position, having a very small relative position of 134,347 shares. This company has provided great returns since I wrote here to buy in that October slide below $4, but it still provides great value at 14x trailing and 5x forward P/E, .7x PEG, .4x P/S, and 3.5x EV/EBITDA. I wouldn't follow Pabrai in this case and sell quite yet, however I can see him closing out this position to fund largely his BAC and WFC massive purchases.

Posco (NYSE:PKX) is a large steel manufacturer based in South Korea. It's had Berkshire Hathaway as an investor in years past, and currently has Third avenue, Dimensional Fund Advisors, and Mohnish Pabrai among many other great value investors. However, Pabrai essentially sold out his position this past few months, as his fund holds just 4,301 shares. The valuations though still look enticing at .4x price/sales, 7x trailing and forward P/E, .8x P/B, and .6x EV/S. As I mentioned here recently, PKX still looks cheap and a solid buy.

Harvest Natural Resources (NYSE:HNR), an independent energy company, engages in the acquisition, exploration, development, production, and disposition of oil and natural gas properties. Pabrai shed another 22% of his position in this holding, bringing his ownership to a paltry 55,501 shares. HNR has had an erratic operating history mostly due to their operations in Venezuela and the constant uncertainty with President Chavez. This energy name has some attractive valuations at a trailing 4x P/E, 6x forward P/E, .2x PEG, .7x P/B, and great net cash position of approximately $65M.

However, this is definitely more of a speculative buy as the company burned approximately $65M in FCF this past year. I'd stay away from this speculative company for now as well when I see Exxon-Mobil (NYSE:XOM) yielding 2.4%, Chevron (NYSE:CVX) yielding 3.4%, ConocoPhillips (NYSE:COP) yielding 3.8%, and many other great energy names trading at favorable valuations and attractive dividends, while HNR has no dividend.

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

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