'Warren Buffett' of Canada - Prem Watsa's High-Yield Stocks in Review

By
A A A

Often referred to as "Canada's Warren Buffett ," Prem Watsa is the founder, chairman and chief executive of Fairfax Financial Holdings. His portfolio currently lists 42 stocks, six of them new, and a total value of $1.59 billion with a quarter-over-quarter turnover of 0%.



Watsa's partner in starting the investment firm, Tony Hamblin, once commented, "It doesn't take a lot of money to start up an investment counseling company. The cost of entry is qualitative. You need to have a track record, contacts and credibility, and fortunately Prem and I had all three."



After buying Markel Financial in 1986, Watsa renamed his firm Fairfax Financial Holdings. Book value has grown dramatically over the years: Book value per share was $1.52 in 1985 and grew to $10.50 in 1989, and then grew to $38.89 in 1995. As of 2012, the Fairfax book value per share increased 3.7%.




Fairfax Financial Holdings Limited is a financial services holding company with a corporate objective to achieve a high rate of return on invested capital and build long-term shareholder value. The company expects to compound its mark-to-market book value per share over the long term by 15% annually by running Fairfax and its subsidiaries for long-term benefit, even at the expense of short-term profits. The Fairfax focus is long-term growth in book value per share and not quarterly earnings. Watsa has commented, "Our long-term view has also meant that we have a commitment not to sell our core companies, no matter how attractive the price." The company emphasis is to be soundly financed, and to grow through internal means and also through friendly acquisitions. Fairfax also values transparency with shareholders.



The company structure is decentralized and run by the presidents, but Fairfax does the performance evaluations, succession planning, acquisitions and financing. Fairfax encourages open communication with its subsidiaries, and describes itself as a very small holding company and not an operating company.



Watsa's approach to business is relational. He is a true inspiration in living the old-fashioned value of a hand shake. He said, "Having shaken hands on an acquisition, we've never walked away from a commitment or gone back to change the deal." He also said, "Work as hard as you can, as though everything depended on you."



The stocks bought by Prem Watsa averaged a 12-month return of 10.42%. In 2012, he returned 6.5% compared to the S&P500 at 15.4%. His 25-year cumulative return is 18.9% annually.



As of Sept. 30, 2013, the portfolio is weighted with top sectors: technology at 26.3%, basic materials 24.2% and energy at 16.6%.



While Watsa's typical buys are massive, here are three smaller stakes that deliver the highest yields in the Fairfax portfolio. Trade details are as of the third quarter of 2013.





BCE Inc. ( BCE ) - Yield: 5.20%



Current Shares: 268,300



Value: $11,477,000



Down 1% since January, BCE Inc. is Canada's largest telecom services company. The company has a market cap of $33.46 billion; its shares were traded at around $43.12. Shares trade with a P/E ratio of 16.30 and a P/B of 3.00. GuruFocus ranked BCE with one out of five stars for business predictability.



Guru Action: As of the third quarter of 2013, Prem Watsa gained 3.7% on 268,300 shares bought at an average price of $41.60 per share.



Over a five-year history, he averaged a gain of 116% on 3,180,000 shares at bought at an average price of $19.94 per share. He gained 84% on 2,911,700 shares sold at an average price of $23.35 per share.



Track historical pricing, revenue and net income:



1387995390055.png



Here are more gurus and insiders trading BCE.





Nam Tai Electronics Inc. ( NTE ) - Yield: 8.70%



Current shares: 35,000



Value: $272,000



Down 48% over 12 months, Nam Tai Electronics Inc., an electronic components company in China, has a market cap of $310.9 million; its shares were traded at around $6.94. Shares trade with a P/E ratio of 11.70 and a P/B of 0.90. GuruFocus ranked NTE with one out of five stars for business predictability.



Guru Action: As of the third quarter of 2013, Prem Watsa took a loss of 7.1% on this holding of 35,000 shares at an average price of $7.47 per share.



Since the third quarter of 2010, Watsa has averaged a gain of 50% on 10,000 shares bought at an average price of $4.63.



Track historical pricing, revenue and net income:



1387995662672.png



Four gurus hold NTE and no insider trading was found.



New York Community Bancorp Inc. ( NYCB ) - Yield: 6.00%



Current Shares: 40,000



Value: $605,000



Up 29% over 12 months, New York Community Bancorp Inc. has a market cap of $7.36 billion; its shares were traded at around $16.69. Shares trade with a P/E ratio of 15.30 and a P/B of 1.30.



NYCB is not ranked for business predictability.



Guru Action: As of the third quarter of 2013, Prem Watsa gained 11.5% on this holding of 40,000 shares at an average price of $14.97 per share.



Overall, he has gained 26% on 20,000 shares bought at an average price of $13.21 per share.



Track historical pricing, revenue and net income:



1381870342007.png



Here are more gurus and insiders trading NYCB.



Check out the complete portfolio of Prem Watsa.



According to investor lore, India's Prem Watsa arrived in Ontario in 1972, with $8 in his pocket and a $600 draft toward the first year's tuition. He earned his MBA and got his first job at Confederation Life in 1974 where the book "Security Analysis" was required reading by the director of research. In 1985, Watsa met Francis Chou, then working as a telephone technician at Bell Canada. Chou inspired Watsa, telling him that Warren Buffett made his money with insurance float.







Use the GuruFocus Value Screen to find 52-Week Lows and discover potentially deep value stocks held by billionaire Guru investors.



GuruFocus Real Time Picks reports the stock purchases and sales that Gurus have made within the prior 2 weeks. The report time lag can be as short as 2 days after the date of the transaction. This feature is for Premium Members only.



If you are not a Premium Member, we invite you for a 7-day Free Trial .

About GuruFocus: GuruFocus.com tracks the stocks picks and portfolio holdings of the world's best investors. This value investing site offers stock screeners and valuation tools. And publishes daily articles tracking the latest moves of the world's best investors. GuruFocus also provides promising stock ideas in 3 monthly newsletters sent to Premium Members .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: BCE , NTE , NYCB

GuruFocus

GuruFocus

More from GuruFocus:

Related Videos

Stocks

Referenced

100%
67%

Most Active by Volume

64,789,752
  • $117.60 ▼ 0.86%
53,107,118
  • $10.39 ▼ 1.05%
42,600,857
  • $17.10 ▼ 0.47%
36,917,582
  • $11.02 ▼ 0.36%
34,902,121
  • $40.75 ▼ 0.10%
31,489,742
  • $15.68 ▲ 0.06%
31,037,743
  • $75.63 ▲ 2.19%
29,605,187
  • $10.11 ▼ 0.69%
As of 11/25/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com