Chesapeake Energy Corporation (CHK), Goldman Sachs Group, Inc. (GS), General Motors Company (GM): Mohnish Pabrai Is Bullish on This Natural Gas Player, But Cutting His Stake Elsewhere

Mohnish Pabrai, the successful value investor, has grown his fund from $1 million in 1999 to around $340 million. He holds quite a concentrated portfolio with less than ten stocks. In the first quarter 2013, it was reported that Pabrai boosted his stake in Chesapeake Energy Corporation (NYSE:CHK) by 1.85% to more than 3.12 million shares, accounting for more than 24% of his total portfolio. During the first quarter, he also cut his stake in Goldman Sachs Group, Inc. (NYSE:GS) and sold out his entire stake in General Motors Company (NYSE:GM).

Chesapeake Energy – an opportunistic stock on asset sale

Chesapeake Energy Corporation (NYSE:CHK) accounted for a significant amount of his portfolio as of March 2013. Chesapeake is considered as one of the largest natural gas players in the U.S., with nearly 15.70 tcfe in its total proved reserves in 2012. In the first quarter of 2013, the company increased its revenue 35% to $3.42 billion. What makes investors excited is the significant improvement in its bottom line, from a loss of $71 million, or $0.21 per share, in the first quarter last year to a profit of $15 million, or $0.02 per share. The net income should have been higher if $177 million in charges from hedging programs and employee retirement expense were excluded. Thus, its adjusted EPS experienced a year-over-year growth of 67% to $0.30.

Mohnish Pabrai seems to see the potential in Chesapeake Energy Corporation (NYSE:CHK)’s business restructuring along with two successful activist investors, Carl Icahn and Mason Hawkins. The company has been on the path of divesting its non-core assets so that it could focus on the profitable “core of the core” drilling business. Last year, Chesapeake Energy Corporation (NYSE:CHK) had divested up to $12 billion of assets. In the first quarter of 2013, it already signed another $2 billion asset sale. The company’s asset sales target was around $4 billion to $7 billion in 2013. Chesapeake Energy Corporation (NYSE:CHK) is trading at $20.60 per share with a total market cap of $13.40 billion. The market values the company at only 5.72 times EV/EBITDA.

Goldman Sachs – a higher EPS due to share buyback

After having Goldman Sachs Group, Inc. (NYSE:GS) in his portfolio since the end of 2008, Pabrai reduced his stake in Goldman Sachs by nearly 28% to nearly 142,000 shares, accounting for 7.74% of his total portfolio. In the first quarter of 2013, Goldman Sachs Group, Inc. (NYSE:GS) witnessed decent growth in non-interest revenue, from $8.97 billion in the first quarter last year to nearly $9.17 billion in Q1 2013 while net interest income decreased 6% to $925 million. EPS came in at $4.29, 9.4% higher than EPS of $3.92 last year. The higher EPS was partly due to the share buyback in the first quarter. Goldman Sachs Group, Inc. (NYSE:GS) repurchased around 10.1 million shares at an average price of $150.53 per share, with the total transaction worth $1.52 billion.

Goldman Sachs Group, Inc. (NYSE:GS) has been considered a consistent dividend payer. In the past ten years, Goldman Sachs has increased its dividend from $0.74 per share in 2003 to $1.77 per share in 2012. Goldman Sachs Group, Inc. (NYSE:GS) is trading at nearly $150 per share with a total market cap of $71.90 billion. The market values the company at 9.8 times its forward earnings and around 1x its book value. The dividend yield does not seem to be juicy, at only 1.30%.