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The Canadian Buffett: 4 Prem Watsa Buy Ideas

Today we look at the portfolio of Prem Watsa, “the Canadian Warren Buffett,” of Fairfax Financial (FRFHF.PK). Here are four stocks this guru has bought recently. There may be some turnaround stories here, but it seems likely that there is better value to be found in the market.

The New York Times (NYT) Business has not been good for this newspaper company. Earnings are negative, so as you can imagine, the company currently pays no dividend. Negative EPS numbers are usually reported as "not applicable" for quarters in which a company reports a loss. Investors buying a company with a negative P/E should be aware that they are buying a company that has negative earnings. The company’s competitors, including Gannett Co (GCI), are experiencing tough times, though not to the extent of NYT. Gannett's EPS are positive, for example. This implies that, holding all other factors constant, a rational investor would prefer buying shares of Gannett to New York Times. The McClatchy Company, another large newspaper organization, posted an EPS of $ 0.26 with a P/E ratio of 4.36. This indicates its stock to be the best buy for investors at this point. Nothing that new here, but we think the whole traditional newspaper space is a dying business. Smaller, more nimble news companies will fill the void left by the industry big boys. Avoid shares of NYT for now.

Citigroup Inc. (C) A number of guru investors have taken a liking to Citigroup recently, most notably Bruce Berkowitz and John Paulson. The dividend paid by this financial company was $0.01 with a dividend yield of 0.14%. The EPS stood at $3.29 with a P/E ratio of 8.50. The financial sector has led the market downward recently. By way of comparison, let's take a look at competitor JPMorgan Chase & Co (JPM) to see how C and JPM line up. The P/E & EPS for JPM are 6.94 and 4.68, respectively, with a 3% dividend yield. This information implies that JPMorgan is a better bet than Citigroup at the time of writing. We like Jamie Dimon's leadership, and trust his instincts to lead JPM through the second leg of the financial crisis.

AbitibiBowater (ABH) ABH is a pulp and paper manufacturer headquartered in Montreal. The company’s price to earnings ratio is 2.21, with earnings per share (EPS) of 7.22. The company’s competitors, including Domtar Corp. (UFS), Hadera Paper Limited (AIP) and Verso Paper Corp. (VRS), have experienced a sharp decline in their stock prices along with ABH. Lightweight competitor Catalyst Paper Corp (CTLUF.PK) posted a negative EPS of -0.96. As you can see, it's not a great time to be a paper manufacturer. This decline in the paper manufacturing industry is mainly due to the heavy costs imposed by environmental regulation authorities. Regulators impose external costs on the company because of the waste they produce. Another main reason for the industry's malaise is that people are simply using less paper.

Research In Motion Limited (RIMM) RIMM is the company behind the innovative and award winning BlackBerry product line. The company does not pay a dividend, and plans to retain much of its earnings. RIMM has faced a lot of competition recently, as companies have moved away from the Blackberry as the "go-to" business smartphone. Employees can now choose their own phone and seamlessly integrate with a number of different systems. This obviously hurts RIMM's bottom line. Gone are the days when the company's phones were the ones used in business. The main benefactor of this move has been Apple (AAPL), the maker of the iPhone and iPad. We think shares of APPL look like a better value given the company's plans to roll out a lower cost iPhone and the success of the iPad as a lifestyle device. Adoption by AT&T (T) and Verizon (VZ) have spurred sales growth.

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Rating: 4.0/5 (9 votes)

Comments

Topwine
Topwine - 2 years ago
Did I miss something, or did you just use 2 well known guru's name in your headline to attract attention to the fact that you disagree with their stock picks and recommended your own ?

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