A Look at Stellar Investor Prem Watsa's Current Holdings

by: GuruFundPicks
Guru Prem Watsa, often called the “Canadian Warren Buffett” and the “Oracle of Ontario,” is founder, chairman and chief executive of Fairfax Financial Holdings based in Toronto, Canada. He is probably also the richest investment guru you have never heard of. He is widely believed to have predicted the crash of 1987; the Japanese collapse of 1990; and the 2008 meltdown, which he benefited from by investing in credit default swaps turning a $341 million bet into more than $2 billion. His net worth is estimated to be over $4 billion.
Founded in 1985 by Mr. Watsa, publicly traded Fairfax Financial Holdings Ltd. (OTCPK:FRFHF), through its subsidiaries, is engaged in property and casualty insurance and re-insurance and investment management. Its subsidiary Hamblin Watsa Investment Counsel provides investment management to the insurance, reinsurance and runoff subsidiaries of Fairfax. Fairfax seeks to differentiate itself by combining disciplined underwriting with the investment of its assets on a total return basis, which Fairfax believes provides above-average returns over the long-term. The company has increased its book value by a compound growth rate of 24.7% over the last 25 years which ranks it among the top ten companies in the S&P 500 (NYSEARCA:SPY).
Per the latest SEC 13-F filing for the March 2011 quarter, the fund holds a concentrated portfolio of 41 positions, and is over-weight Basic Materials, Industrial and Technology sectors, and it is under-weight Energy and Financial Sectors. Over 90 percent of the company’s assets are deployed in mid-cap and large-cap companies, with each accounting for between 45%-50% of the assets. Furthermore, the portfolio turnover is between 10%-15% implying a holding period approaching eight to ten years.
Based on a review of available SEC 13-F filings, we determined that Fairfax Financial started buying International Coal Group (NYSE:ICO) since the quarter ending June 2007, bought at a price of about $6, when it held 6.7 million shares. Since then, it has kept accumulating ICO shares, currently holding 22.6 million shares or 11.1% of the outstanding shares of the company. On May 2, Arch Coal Inc. (ACI) announced that the company had made a proposal to acquire ICO for $14.60 per share in cash, netting Fairfax Financial almost 150% return to their initial investment in less than four years.

Of the 41 positions in the portfolio, ICO is a high conviction hold currently ranking in the top three holdings. The following summarizes the high conviction pans based on the latest reported 13-F filing for the March 2011, quarter:
  • Johnson & Johnson (NYSE:JNJ) develops healthcare products and provides related services to the consumer, pharmaceuticals and medical markets.
  • Stewart Enterprises CL A (NASDAQ:STEI) provides funeral and cemetery products and services via 217 funeral homes and 140 cemeteries in 24 States and Puerto Rico.
Furthermore, the following summarizes their largest (high conviction) holdings based on the latest reported 13-F filing for the March 2011, quarter:
  • Dell Inc. (NASDAQ:DELL) provides desktop PCs, mobility products, servers and networking products to individuals, businesses, and governments.
  • Sandridge Energy Inc. (NYSE:SD) is engaged in the exploration and production of crude oil and natural gas.
  • Level 3 Communications (NASDAQ:LVLT) provides network access services to telecom service providers, businesses, and distribution providers.
  • Kraft Foods Inc. CL A (KFT) manufactures food products such as snacks, cheese, beverages and other grocery products sold worldwide.
  • Frontier Communications (NYSE:FTR) provides local exchange, long distance, Internet, network access and data services to rural communities in 24 States.
  • Wells Fargo & Company (NYSE:WFC) is a diversified financial services holding with 9,000 offices throughout the U.S. and worldwide.
  • U.S. Bancorp (NYSE:USB) is a holding company for U.S. bank operating through 3,482 branches in 24 mid-western and western states.
  • Research in Motion Ltd. (RIMM) is a Canadian manufacturer of Blackberry handheld devices for the mobile communications market.
  • USG Corp. (NYSE:USG) manufactures and distributes building materials for residential, non-residential, and repair and re-model construction.
New or Increased or Decreased or Unchanged Position
Market Value at end of March 2011 Quarter
Change in Value from Prior Quarter
High Conviction Pans
Johnson & Johnson
$ 307 million
$ 101 million
Stewart Enterprises CL A
$ 9 million
$ 23 million
High Conviction Holdings
Dell Inc.
$ 329 million
$ 0 million
Sandridge Energy Inc.
$ 273 million
$ 0 million
International Coal Group, Inc.
$ 255 million
$ 0 million
Level 3 Communications Inc.
$ 205 million
$ 0 million
Kraft Foods Inc.
$ 168 million
$ 0 million
Frontier Communications
$ 153 million
$ 0 million
Wells Fargo & Co.
$ 143 million
$ 0 million
U.S. Bancorp
$ 118 million
$ 0 million
Research in Motion Ltd.
$ 117 million
$ 0 million
USG Corp.
$ 113 million
$ 0 million
Click to enlarge
Credit: Historical fundamentals, including operating metrics and stock ownership information were derived using I-Metrix® by Edgar Online®, Zacks Investment Research, DailyGraphs®, Thomson Reuters and Briefing.com. Fund data, including assets under management and firm profiles are sourced mostly from Hedgetracker.com. The information and data are believed to be accurate, but no guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are my opinions and I may be wrong. I may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to my thoughts and opinions. The contents of this article do not consider your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks, including loss of principal.