Financial Jungle

Value investors will be pleased to learn that Pat Naccarato, manager of the successful AIC Value fund, is now sharing his value wisdoms on the Market Call segment of BNN. Okay, I can hear some people giggling. BNN guests are often stereotyped as talking heads by many investment forums, but I believe each guest should be evaluated on his own merits.

Deep value investors are a rare breed, because they’re natural contrarians who go against the crowd. It is the ability to think independently that helps them hunt for out-of-favour gems when no one is looking. There are plenty reasons to like Pat Naccarato. It is not because he outperformed S&P 500 13 out of 15 years, or that I’m holding many of his current recommendations. It is the way he rationalizes his investment philosophies. Pat puts capital preservation as his number one priority. He emphasizes one way to keep your risks in check is to buy companies at or near their book value, because book value is a more stable yardstick over earnings. Try avoiding companies with high Price/Book ratio such as the old Nortel, which managed to fall by 90% twice! Pat doesn’t spend much time worrying about returns, because you can’t worry about what you cannot control, but everyone can always manage their risks.

Despite having Dows and S&P hitting new highs, Pat is still able to find many bargains out there. During the segment, he commented on homebuilders, financials and furniture makers. Although he didn’t mention one specifically, one homebuilder off the top of my head is DR. Horton. Over the past 10 years, DHI traded between 0.93 to 2.11 Price/Book. It is now trading at 1.09, which is both near its historical low and its book value. DHI also sports a handsome 2.65% dividend yield, the highest among the major builders, as well as a low Price/Earning of 10.10. Pat is also excited about Internet bank, IndyMac Bancorp, whose stock tumbled for no apparent reason except that it’s in the same general sector as sub-prime lenders. IndyMac is yielding 6.50% backed by a healthy payout ratio of 38%.

The $250 millions AIC fund started gaining traction since Pat took over as the portfolio manager sometime in 2005. I might consider investing a small portion inside my RRSP to receive his quarterly and annual commentaries.

To learn more about Pat Naccarato, check out the following links:

• Pat Naccarato’s Profile
• BNN Market Call Segment 12:30pm - available till May 2, 2007
• Morningstar Report on AIC Value Fund
• GlobeFund Report on AIC Value Fund