Value Investing Congress West 2008: Day 2 (II)
Mohnish Pabrai- Pabrai Funds
Pabrai began by reiterating the notion that we as investors or entrepreneurs should look for opportunities with low risk but high uncertainty. If your risk is low, losses will be not break you. Since Wall Street hates uncertainty, it tends to misinterpret certain situations and companies, over-punishing them in the process. This gives patient, diligent value investors a potential advantage.
Pabrai’s favorite idea was Wellcare (WCG, $46.49), whose shares slid from 128 to 21 in a very short time frame, following a raid and seizure of documents and materials by 200 federal agents related to potential excess Medicare billings.
• Pabrai became interested when it was disclosed in a 13G filing that Fairholme Funds took a 16% stake in Wellcare, following the raid
• Believes that ultimate damage to the company from allegations/penalties will be minimal
• Wellcare has loads of cash, and a solid, growing business
• Currently trading around $46, Pabrai believes it may be worth in the $93-$108 range
Steven Romick- First Pacific Advisors
Romick is nervous and somewhat wary of current market conditions. He believes the global credit crisis is still early, is not finding many compelling ideas, and currently has a relatively large cash position.
Among Romick’s concerns are:
• Negative US savings rate
• Too much foreign investment in the US
• Government debt growing
• Inflation
• Higher interest rates on the horizon
• Potential for bank failures
While Romick is avoiding financials, his largest position is in energy (17-25% in the portfolios he manages)
One idea Romick is bullish on is automotive retailer Group 1 Automotive (GPI, $27.27). Romick sees many positives in the company and sector:
• Not as cyclical as many believe
• Parts and service are growth businesses
• Used cars will become even more lucrative
• Valuations in this sector are currently attractive
• Strong management is a plus
Romick believes Group One could earn $3.23 in 2008, $4.00 in 2009 and $5.00 in 2010, putting its forward P/E in single digits.
Jonathan M. Heller, CFA
*Author does not own any securities mentioned