Monday, April 21, 2008

Mohnish Pabrai Interview

Mohnish Pabrai started the Pabrai funds in 1999 and has since had returns of 25% a year on average net to investors. I have been following Pabrai since I read an article about him in Forbes Magazine in 2004. I recommend the article , in it Pabrai talks about his investment in Frontline. In the interview published today by Smart Money Pabrai talks about one of my largest holdings Pinnacle Airlines.

Smart Money: What stocks do you like now?

Mohnish Pabrai: Pinnacle Airlines. Depending on
things work out, it's anywhere from a double to five or six times return in
the next two or three years.

SM: An airline?

MP: It's a regional jet
company. The large airlines,
like Northwest and Delta, outsource the small planes to Pinnacle. Many of the
reasons why airlines are so terrible — load factors, price wars — don't
The revenue is the same whether there is one passenger or the plane
is full and
whether Northwest charges $200 or $2,000 round-trip. The
contracts are
long-term, usually 10 years, and will hold up in the event of
a merger. So you
can estimate what their cash flows will be many years into
the future.

What's the investment case?

MP: Pinnacle has more than $10 a share in cash
on the
balance sheet. In the next few years, free cash flow will be $3 to $6 a
share, depending on how much more business they get. With a simple 10 or 15
multiple on those numbers, you end up with $30.

SM: Why are the shares so

MP: One overhang is that they have a past-due contract with
But not a lot of Wall Street analysts follow Pinnacle, and the
business itself
is changing. The evolution away from hub-and-spoke and
toward more nonstop
flights is driving demand for their services. When you
connect one small city to
another directly, you aren't going to run a jumbo
or a 737.

Full Interview Via Smart Money

I also highly recommend Pabrai's book The Dhandho Investor: The Low - Risk Value Method to High Returns.