By Ann McQueen
Finance guru and CEO of Fairfax Financial Holdings Prem Watsa, who is touted as the Canadian Warren Buffet, reported second-quarter purchases, some of which were additions to holdings and some of which were new positions. Since Watsa is a fan of high quality, stable companies, I take a look at four of his recent buys to see what pros and cons they offer. Third quarter results are due out in the next couple of weeks, so the snapshots I provide should help investors get an idea of where these stocks have been and where they might be headed.
Research In Motion Limited (RIMM) – Currently trading near $24 a share, this mobile device manufacturer and innovator of the BlackBerry has ranged from $19.29 to $70.54 over the past 52 weeks. It does not pay a dividend. Earnings per share is $5.48, and price to earnings ratio is 4.46. Market capitalization is $12.71 billion. Its balance sheet showed $1.15 billion in total cash and no debt. Second quarter revenue for the period ended Aug. 27 was $4.2 billion, which was down 15 percent from the previous quarter and 10 percent from the same quarter last year. Service revenue topped $1 billion for the first time, and 24 percent of RIMM’s revenue is generated by service. The subscriber base for BlackBerry surpassed 70 million, an increase of 40 percent year over year. The company shipped about 10.6 million BlackBerries and about 200,000 BlackBerry PlayBooks during the second quarter.
RIMM officials expect third quarter revenue to increase to $5.3 to $5.6 billion and BlackBerry shipments to increase by 27 to 37 percent over the second quarter.
Millions of international BlackBerry customers lost service earlier this week after its private network failed. Analysts at Jefferies say companies interested in buying RIMM will likely wait for two developments to unfold. One is the completion of RIMM’s transition to the real-time operating system QNX next year, and the other is the possible evolution of Windows 8 as the third mobile ecosystem. The investment bank maintains its “Underperform” rating on RIMM with a $21 price target. The BlackBerry Torch, which retails fro $199 with a contract, has received mixed reviews, but overall, it competes well with its Android and iPhone rivals.
Motorola Mobility Holdings Inc. (NYSE:MMI), another maker of mobile devices, is currently trading near $38 a share. It has ranged from $20.77 to $38.74 over the past 52 weeks. It does not pay a dividend. It posted a lost per share of $0.31, and it price to earnings ratio is not available. Market capitalization is $11.29 billion. Its balance sheet showed $3.05 billion in cash and $98 million in debt. Net revenue of $3.3 billion for the second quarter was up 28 percent over the same quarter 2010, and revenue from the Mobile Devices unit at $2.4 billion was up 41 percent over last year. The company shipped 11 million mobile devices, including 4.4 million smartphones and 440,000 tablets. Google Inc. (NASDAQ:GOOG) is acquiring MMI for $12.5 billion, and the deal should be closed later this year or early next year.
Watsa added to his position in the second quarter for a total of 8,373,300 shares, and RIMM is among his top 10 holdings. RIMM is well priced and trading near the lower end of its 52-week range. It will be interesting to see if a possible acquisition unfolds.
AbitibiBowater (ABH) – This manufacturer of newsprint, paper, pulp, and wood products is currently trading near $16 a share. It has fluctuated between $13.70 and $30.54 over the past 52 weeks. It does not pay a dividend. Earnings per share is $30.65, and its price to earnings ratio is 0.52. Market capitalization is $1.55 billion. Its balance sheet showed $297 million in cash and $713 million in debt. Company officials announced improved financial results for the second quarter ended June 30. Sales were $1.2 billion, and net income was $61 million. Sales for the same quarter 2010 were also $1.2 billion, but the company posted a net loss of $297 million. Management remains cautious about the weak economic outlook, noting that impacts to advertising could negatively affect demand for paper. Pulp paper pricing is expected to be weaker but should stabilize later in 2012, and an export tax on Canadian lumber entering the U.S. has ended.
ABH is changing its name to Resolute Forest Products, and statements by company officials in the media reiterate ABH’s growth outlook.
After a three-month battle, industry giant International Paper Inc. (NYSE:IP) announced in September that it would purchase Temple Inland Inc. (NYSE:TIN) for $32 a share and assume $600 million of its debt. TIN is currently trading near $31.50 a share, which is on the high end of its 52-week range of $18.16 to $31.65. Its dividend yield is 1.6 percent or $0.52 a share. Earnings per share is $1.69, and price to earnings ratio is 18.72. Market capitalization is $3.43 billion. Its balance sheet posted $43 million in cash and $733 million in debt. Management reported net income of $19 million for the second quarter ended June 30, which was up from $16 million reported for the first quarter but down from $20 million for the same quarter 2010.
Watsa holds a total of 17,503,604 shares of ABH, so it is also a top 10 holding. ABH shares are cheap, and it is positioned for growth and continued solid performance. Anybody who has picked up a copy of the local daily on Any Main Street, U.S.A., can see that newspapers have not yet regained their thickness from pre-recession times, thanks to continued slow ad sales. Fewer ads mean less newsprint for publication. Speculation abounds that ABH could be another possible acquisition target. Time will tell.
Citigroup Inc. (NYSE:C) – Trading near $29 a share, this financial services giant has traded between $21.40 and $51.50 over the past 52 weeks. Its dividend yield is 0.20 percent, or $0.40 a share. Earnings per share is $3.24, and its price to earnings ratio is 9.05. Market capitalization is $85.41 billion. Its balance sheet showed $798.23 billion in total cash and $688.01 billion in total debt. Company officials announced second quarter revenue of $20.6 billion, which is 5 percent over the $19.7 billion in revenue for the first quarter and down 7 perent from the same period 2010. The most recent quarter’s $3.3 billion in net income compares to an 11 percent increase or $3 billion for last quarter and a 24 percent increase or $2.7 billion for the same quarter 2010. Other quarterly highlights included a 35 percent decline in net credit losses from the prior year and 34 percent fewer assets in Citi Holdings over the same period last year. Watsa’s 100,000-share position was new in the second quarter.
C popped earlier this week on news that the euro zone is nearing agreement on how to stabilize the region’s sovereign debt crisis. The financial services sector has taken a beating over the past couple of quarters, with this issue topping the list of reasons, but was uplifted by the optimistic reports from Europe. News of C’s CEO Vikram Pandit’s comments about the U.S. averting another recession and the balance struck by the new Volcker rule also topped the headlines and contributed to the apparent improved investor sentiments for C.
Fellow banking giant JPMorganChase (NYSE:JPM) is one-up on its peers by planning to release its third quarter results on Thursday, several days before its competitors, including C. JPM is currently trading near $33. Its 52-week range is $27.85 to $48.36. Its dividend yield is 3.10 percent or $1. Earnings per share is $4.68, and price to earnings ratio is 7.11. Its balance sheet showed $877.29 billion in cash and $749.44 billion in debt. Market capitalization is $129.76 billion. JPM announced second quarter revenue of $27.4 billion, which was up 6 percent over the previous quarter’s $25.8 billion and 7 percent over $25.6 billion for the same quarter last year. Net income was $5.4 billion, which was down from $5.6 billion for the first quarter and up from $4.8 billion for the same period 2010.
Watsa appears to have, in partial Buffet fashion at least, bought low. I am holding my breath until C’s financial results come out Monday.
New York Times Co. Class A (NYSE:NYT) – This diversified media company is currently trading near $7 a share. Its 52-week range is $5.50 to $11.72. It does not pay a dividend. It posted a loss per share of $0.35, and earnings per share is not available. Its balance sheet showed $403.19 billion in total cash and $1 billion in total debt. Market capitalization is $1.02 billion. Total revenues for the second quarter 2011 totaled $$577 million, down from $590 million for the same period 2010. NYT posted an operating loss of $114.1 million in the second quarter, which compares to a profit of $60.8 million for the same period in 2010. Included in the recent quarter’s operating loss are charges of $161.3 million for the write-down of goodwill and $4.2 million for a pension fund withdrawal obligation.
About two weeks ago, NYT laid off most of the editorial staff for its About.com website. Fellow news giant Gannett (NYSE:GCI) announced Wednesday plans to shut down the “MomsLikeMe.com” network of websites for stay-at-home mothers. GCI is currently trading near $11 a share with a 52-week range of $8.28 to $18.93. Its dividend yield is 3 percent or $0.32. Earnings per share is $21.3, and price to earnings ratio is 5.20. GCI posted $165.34 million in total cash and $2.02 billion in total debt on its balance sheet. Market capitalization is $2.67 billion. GCI reported net operating revenue of $1.3 billion for the quarter ended June 26, which is 2.2 percent down from $1.4 billion for the same quarter 2010. Operating income was $242 million, down 11.3 percent from $273 million for the same period 2010.
NYT launched an online subscription plan for the New York Times newspaper, which should take up the slack from lost paper subscriptions and increased costs associated with print publication. Ad revenues should improve with overall market conditions, but may not happen until the medium term. Watsa’s new position is 25,000 shares and should prove fortuitous in the medium to long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.