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Stocks Warren Buffett and Prem Watsa Have in Common in 2012
Posted by: guruhl (IP Logged)
Date: May 31, 2012 05:12PM
Investors Warren Buffett and Prem Watsa have a lot in common. Both run insurance companies and invest the “float” – the money from insurance premiums that has not been used for disasters. Both are unusually successful at it. Prem Watsa has an 8,396 percent 25-year cumulative return compared to 829.8% for the S&P, and Warren Buffett has a 4,724% percent 25-year cumulative return.
Both also invest in companies based mainly on their fundamentals, according to Ben Graham’s teachings.
In the first quarter of 2012, they had these stocks in common: Johnson & Johnson (JNJ), US Bancorp (USB), USG Corp. (USG) and Wells Fargo (WFC).
Prem Watsa owns 5,947,300 shares of Johnson & Johnson (JNJ), the company engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. His holding is valued at $392 million as of March 31, 2012, which accounts for 17.7% of his equity portfolio. Warren Buffett owns 29,018,127 shares of JNJ, valued as $1.9 billion as of March 31, 2012, which accounts for 2.5% of his equity portfolio.
Buffett first bought over $600 million of Johnson & Johnson in 2006, paying an around $58.59 per share. On Thursday the stock trades for $63 per share.
Prem Watsa has owned Johnson & Johnson since before the third quarter of 2007. He mentioned the holding in his 2007 letter to investors:
“Johnson & Johnson has perhaps the best long term track record we have come across. They have compounded sales and earnings for the last 100 years in excess of 10% per year. The growth prospects for their products on a worldwide basis are unlimited. We own 5.9 million shares at a cost of $62.29 per share with a market value of $370 million.”
Buffett also commented on Johnson & Johnson on CNBC’s Squawk Box in the first quarter of 2012:
"They have some wonderful products and a wonderful balance sheet, but too many mistakes have been made at Johnson & Johnson," Buffett said in the interview with CNBC's Becky Quick on the show Squawk Box. "Clearly, they have not lived up to their standards."
Johnson & Johnson has a market cap of $171.37 billion; its shares were traded at around $62.535 with a P/E ratio of 12.5 and P/S ratio of 2.6. The dividend yield of Johnson & Johnson stocks is 3.9%. Johnson & Johnson had an annual average earnings growth of 7.2% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 4-star.
Prem Watsa owns 4,448,310 shares of U.S. Bancorp (USB), valued at $141 million as of March 31, 2012, which accounts for 6.4% of his equity portfolio. Warren Buffett owns 69,039,326 shares of USB, valued at $2.2 billion as of March 31, 2012, which accounts for 2.9% of his equity portfolio.
U.S. Bancorp is the fifth-largest commercial bank in the U.S., with $341 billion in assets as of March 31, 2012. Buffett first bought a stake in U.S. Bancorp valued higher than $700 million in 2006, at a price of about $31.22, and Tuesday the stock trades for around $31.
Prem Watsa bought and sold a small stake in 2007 and 2008. Then, in the third quarter of 2008 he bought a small stake again, and added 15,828,700 shares in the first quarter of 2009 when the stock dropped to $15.20 per share, making a significant profit.
U.S. Bancorp has a market cap of $59.11 billion; its shares were traded at around $31.055 with a P/E ratio of 12.1 and P/S ratio of 2.8. The dividend yield of U.S. Bancorp stocks is 2.5%. .U.S Bancorp had an annual average earnings growth of 0.7% over the past 10 years.
The third-largest stock the two own in common is USG Corp. (USG), a company that makes and distributes building systems through its U.S. subsidiaries. Prem Watsa owns 6,794,000 shares of USG, valued as $117 million as of March 31, 2012, which accounts for 5.3% of his equity portfolio. Warren Buffett owns 17,072,192 shares of USG, valued as $294 million as of March 31, 2012, which accounts for 0.39% of his equity portfolio.
Prem Watsa began investing in USG Corp. before the third quarter of 2007. He paid an average of more than $41 for 4,500 shares in the third quarter of 2007 and added more as the price dropped. He added the most, 7,094,700 shares, in the fourth quarter of 2008 when the price fell all the way to about $12.50 per share. On Tuesday it trades for about $15.42.
Warren Buffett’s holding of USG Corp. is 17,072,192 shares, which he has held since prior to the first quarter of 2007.
USG Corp has a market cap of $1.65 billion; its shares were traded at around $15.24 with and P/S ratio of 0.6.
After declining for four years, USG’s revenue increased from $2.9 billion in 2010 to $3 billion in 2011. It has been losing money since 2008, but the losses have been smaller since 2009. Free cash flow was negative for the past two years. The company’s difficulties have stemmed from a recession in their key markets – housing construction. In 2011, it focused on restructuring, which helped reduce its operating loss by 24 percent. The company is also diversifying, with particular success in Mexico, where operating profit increased 24 percent as the U.S. market slumped to almost record lows.
Prem Watsa owns 2,956,660 shares of Wells Fargo (WFC), valued at $101 million as of March 31, 2012, which accounts for 4.5% of his equity portfolio. Warren Buffett owns 394,334,928 shares of WFC, valued as $13,463 million as of March 31, 2012, which accounts for 17.9% of his equity portfolio.
Watsa initiated his stake in Wells Fargo in the fourth quarter of 2008 and made his biggest purchase, 16,513,600 shares, in the first quarter of 2009 at about $16.50 per share. He began reducing the stake dramatically in 2010 when the share price reached the upper $20s. In the first quarter of 2012, he reduced the stake a further 34.46 percent.
Wells Fargo is Warren Buffett’s second largest holding. He has had a stake in the company since before the second quarter of 2007 and has been aggressively adding shares in the last several years, with only two small sales in 2008. He owns 7.47 percent of the bank’s shares outstanding.
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services through stores, its Internet site and other distribution channels across North America as well as internationally.
In his 2011 letter, Buffett wrote of Wells Fargo, “The banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its assets solid and its capital at record levels.”
Buffett also noted in his 2010 letter that Berkshire is anticipating a dividend increase from Berkshire: “In addition, dividends on our current common stock holdings will almost certainly increase. The largest gain is likely to come at Wells Fargo. The Federal Reserve, our friend in respect to Goldman Sachs, has frozen dividend levels at major banks, whether strong or weak, during the last two years. Wells Fargo, though consistently prospering throughout the worst of the recession and currently enjoying enormous financial strength and earning power, has therefore been forced to maintain an artificially low payout…”
The bank did increase its dividend rate to $0.22 per share quarterly starting in the first quarter 2012, from a dividend of $0.12 per share quarterly the previous year. Wells also increased its earnings each year since 2009 and was named the “most valuable bank brand in the U.S.” according to The Brand Finance Banking 500 report in February.
Wells Fargo has a market cap of $168.15 billion; its shares were traded at around $31.99 with a P/E ratio of 11 and P/S ratio of 1.9. The dividend yield of Wells Fargo stocks is 2.8%. Wells Fargo had an annual average earnings growth of 2.2% over the past 10 years. GuruFocus rated Wells Fargo the business predictability rank of 2-star.
See Warren Buffett’s portfolio here, and Prem Watsa’s portfolio here.
To check the consensus holdings of any combination of your favorite Gurus, please go to Aggregated Portfolio of Gurus. This is one of the features that GuruFocus offers to Premium Members of GuruFocus. If you are not a Premium Member, why not Take a 7-Day Free Trial?
Guru Discussed: Warren Buffett: Current Portfolio, Stock Picks
Prem Watsa: Current Portfolio, Stock Picks
Stocks Discussed: JNJ, USB, WFC, USG,