This article is part of a series that provides an ongoing analysis of the changes made to Prem Watsa's US stock portfolio on a quarterly basis. It is based on Watsa's regulatory 13F Form filed on 02/12/2016. Please visit our Tracking Prem Watsa's Fairfax Financial Holdings Portfolio series to get an idea of his investment philosophy and our previous update highlighting the fund's moves during Q3 2015.
This quarter, Watsa's US long portfolio increased 13.88% from $1.08B to $1.23B. Although there are 33 13F securities in the portfolio, it is still very concentrated: a few large stakes and numerous minute positions. The focus of this article is on the larger (greater than 0.5% of the portfolio each) holdings. The top five positions represent 88.87% of the US long assets. The top-two holdings are Blackberry and Resolute Forest Products and together they account for ~53% of the entire 13F portfolio.
It should be noted that Fairfax Financial (OTCPK:FRFHF) has a negative view on equities, the stock portfolio is hedged, and the 13F holdings only represent a small portion of the overall investment portfolio.Stake Decreases:
International Business Machines (NYSE:IBM): IBM is a large (third largest) 15.22% of the US long portfolio position established in Q3 2014 at prices between $181 and $196. The stake was increased by ~28% in Q4 2014 at prices between $151 and $190. The stock currently trades well below the low end of those ranges at around $121. This quarter saw a marginal reduction. For investors attempting to follow Watsa, IBM is a very good option to consider for further research.
Pfizer Inc. (NYSE:PFE): The very small 0.55% portfolio stake in PFE saw a ~11% reduction this quarter at prices between $31.33 and $35.45. The stock is now at $29.35.Stake Increases:
Exco Resources (NYSE:XCO): XCO is a 2.57% of the US long portfolio stake first purchased in Q1 2012. The bulk of the current position was purchased in Q4 2012 at prices between $6.77 and $8.93. This quarter saw another ~46% increase at prices between $0.75 and $1.36. The stock currently trades at $0.915. Watsa controls 9.1% of the business.
Note: In January 2014, XCO had a rights offering (one new share at $5 for every four shares of XCO held) and Watsa increased his stake from 10.81M shares to 17.54M shares as a result - Prem Watsa along with Wilbur Ross agreed to backstop the offering thereby acquiring more shares than what he would have received by exercising his rights.
Helmerich & Payne (NYSE:HP): HP was a minutely small stake as of last quarter. This quarter saw the position increased to a 1.52% of the portfolio stake at prices between $46.86 and $61. The stock is currently at $47.41.Kept Steady:
Blackberry Inc. (NASDAQ:BBRY): BBRY is Watsa's largest position at 35.17% of the US long portfolio. The stake was first purchased in 2010 at around $50 for 2M shares. Since then, the position was aggressively built up to the current stake of almost 46.7M shares (~9% of the business). His cost-basis is around $17 and the stock currently trades at $6.68. There has only been very minor activity in the last two years.
Note: In Q4 2013, Fairfax co-sponsored a cash-infusion of $1B through convertible debentures ($10 conversion price earning 6% interest) - they financed $500M of that transaction and the remaining was funded by a consortium of other investment funds - the implied dilution takes their ownership up to ~16.5% of the business.
Johnson & Johnson (NYSE:JNJ): JNJ is a long-term position that has been in the portfolio since 2007. The original stake was 5.9M shares purchased at a cost-basis of $62.29. In Q3 2013, roughly half the stake was sold at prices between $85.86 and $94.39 and in the following quarter the remaining position was almost eliminated at prices between $85.61 and $95.63. The stock currently trades at $102 and the stake is now very small at 0.69%.
Kennedy-Wilson Holdings (NYSE:KW): KW stake in the common stock is the third-largest at 17.50% of the US long portfolio. Watsa's ownership stake in the business is ~8%. KW currently trades at $16.06 and his cost-basis is $11.90.
Note: The original stake is from a 2010 private placement for Kennedy Wilson convertible preferred stock.
Overstock.com Inc. (NASDAQ:OSTK): OSTK is a top-five position at 3.17% of the US long portfolio. The original stake was purchased in Q4 2008 at prices between $9 and $17 and has since been kept relatively steady. The stock currently trades at $13.53.
POSCO ADR (NYSE:PKX): PKX is a very small 0.55% of the US long portfolio stake established last quarter at prices between $34.64 and $50.83. The stock currently trades near the low end of that range at $37.72.
Resolute Forest Products (NYSE:RFP): RFP is the second-largest holding at 17.80% of the US long portfolio. The stake was first established in Q4 2010 when it was named Abitibi Bowater and the position has since been more than doubled. In Q2 2013, the original stake was increased by ~17% at prices between $12.70 and $16.49. Since then, the position has remained relatively steady. Watsa's cost-basis on RFP is much higher than the current quote of around $4.20. The stock lost ~55% in 2015 and another ~45% YTD.
Sandridge Energy (OTCPK:SDOC): SDOC is a 0.91% of the US long portfolio stake first purchased in Q4 2008. The bulk of the position was acquired in Q4 2012 at prices between $5.19 and $7.38. Q4 2014 saw a ~57% stake increase at prices between $1.64 and $4.57. Last quarter saw a ~13% increase at prices between $0.26 and $0.88. The stock is now OTC traded and is at 3.5c.
The 13F portfolio also has numerous very small positions (less than ~0.5% of the US long portfolio each) that add up to a total allocation of 1.62%. The stakes are Atwood Oceanics (NYSE:ATW), Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Colfax Corp. (NYSE:CFX), Dex Media Inc. (NASDAQ:DXM), Eros International (NYSE:EROS), General Dynamics (NYSE:GD), K12 Inc. (NYSE:LRN), New Oriental Education (NYSE:EDU), Omnivision Technologies (NASDAQ:OVTI), Penn West Pete. (NYSE:PWE), Precision Castparts (BATS:PCP), Rayonier Advanced Materials (NYSE:RYAM), Reald Inc. (NYSE:RLD), Solera Holdings (NYSE:SLH), Turquoise Hill Resources (NYSE:TRQ), USG Corporation (NYSE:USG), Ultra Petroleum (NYSE:UPL), US Bancorp (NYSE:USB), and Wells Fargo (NYSE:WFC). The following very small stakes as of last quarter were sold-out this quarter: Altera Corp. (NASDAQ:ALTR), BP plc (NYSE:BP), Citigroup (NYSE:C), CSX Corporation (NASDAQ:CSX), Hologic Inc. (NASDAQ:HOLX), Lumenis Ltd. (NASDAQ:LMNS), MBIA Inc. (NYSE:MBI), Merck & Co. (NYSE:MRK), Nam Tai Property (NYSE:NTP), New York Community Bancorp (NYSE:NYCB), New Tork Times (NYSE:NYT), Patterson UTI Energy (NASDAQ:PTEN), Sterling Bancorp (NYSE:STL), and Yodlee Inc. (NASDAQ:YDLE).
The spreadsheet below highlights changes to Watsa's US stock holdings in Q4 2015:
Disclosure: I am/we are long BBRY, BP, IBM, RFP, SDOC, XCO.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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