David Nierenberg, D3 Family Funds

Nierenberg is a long-term investor, with an average holding period of 7 years, in what he described as the microcap GARP space:

• Busted growth companies seen as dead money, up to $1.2 billion market cap
• Takes large stakes, average 12.8%
• Concentrated portfolio of 10 to 12 names
• Seeks multiples, not percentages in terms of returns
• Works constructively with management and boards in order to improve companies
• Believes uncertainty does not equal risk of loss
• Looks out longer than the Street is willing to
• Considers what “could be” in terms of a company’s future not just “what is”

One of Nierenberg’s favorite holdings is Move Inc (MOVE), which operates in the online media space, and owns Realtor.com:

• Leading market share in their niche
• Relationship with NATIONAL Association of Realtors
• Recovering from years of bad management, and a history of losses
• Currently trading at $1.59, EV of $195 million
• Cash/Short term investments $48 million, no LT debt
• Poised to be beneficiary of internet real estate advertising/bottoming housing market
• 3 year Price target $10-$12.80

Mohnish Pabrai- Pabrai Investment Funds

Pabrai highlighted research from Joel Greenblatt that shows the potential opportunities that spinoffs offer investors:

• Outperform indices by about 10% for years after being spun out
• Largest gains typically in the second year
• Can unleash entrepreneurial instincts of management
• Typical spin-offs are well capitalized, have ample liquidity

Pabrai delivered a very detailed and thought provoking analysis of one of his favorite ideas; Portugal based Sonae Capital, which was recently spun-off by Sonae Group.

• Former Sonae Group head, and Portugal’s second richest person Belmiro Mendes de Azevedo is at the helm of the spinoff
• Sonae Capital owns 100+ properties in Portugal, several other businesses and JV’s
• Flagship is Troia Peninsula, with 18km of white sand beaches, finest in Portugal
• Troia has 1100 acres of developable property, best golf course in Portugal, resort
• Pabrai believes Troia alone is worth between 600 million and 1 billion Euros
• Soane Capital as a whole may be worth 950 to 1.5 billion Euros net of debt
• Current market cap is 170 million Euros
• Pabrai sees this a potential “dollar bill” for 12 to 20 cents

Jonathan Heller, CFA

Disclaimer: I have no positions in any of the companies mentioned

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