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Warren Buffett and Prem Watsa Revisited – Stocks They Have in Common 2013

Holly LaFon

Holly LaFon

266 followers
Two years ago, GuruFocus reviewed the stocks of two much-followed investors who share similar approaches to their craft: Warren Buffett and Prem Watsa. Both of them own large insurance companies – Buffett’s Berkshire Hathaway (BRK.A)(BRK.B) in Nebraska and Watsa’s Fairfax Financial Holdings (FFH) in Canada. And both not only buy other companies to form subsidiaries to their primary insurance holding, but invest the float from premiums into the common stock of good companies in the open market, with unusually good returns.

In September 2011, Buffett and Watsa owned in common Wells Fargo (WFC), Kraft (KFT), Johnson & Johnson (JNJ), Wal-Mart (WMT), U.S. Bancorp (USB) and USG Corp. (USG).

Though the two vary their holdings rarely, they have made a few changes between now and then. Their updated common holdings are Wells Fargo (WFC), IBM (IBM), Wal-Mart (WMT), U.S. Bancorp (USB), USG Corp. (USG) and Johnson & Johnson (JNJ). Here is a look at the top dual holdings.

Wells Fargo Co. (WFC)

Warren Buffett owns 463,131,623 shares of Wells Fargo, valued at $19.1 billion. He has only been adding to the stake since 2009, bringing his total ownership to 8.7% of shares outstanding.

Prem Watsa owns 1,323,663 shares of Wells Fargo, valued at $54.6 million. By contrast to Buffett, he has been only trimming the stake since 2010 and holds 0.02% of its shares outstanding. He initiated his position in the fourth quarter of 2008, and has an average 125% gain on it.

In his 2012 investor letter, Buffett said in reference to Wells Fargo and his other top holdings, “At Berkshire we much prefer owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business.”

Watsa, in his 2011 annual letter, called Wells Fargo and his other long-term holdings, “three of the finest companies in the world,” and said, “we continue to be very optimistic on the long term prospects for these companies.” He did not mention the bank in his most recent 2012 letter.

Wells Fargo is the fourth largest U.S. bank by assets, with more than 9,000 stores. The bank has a $222 billion market cap, with its stock up 19% over the past 12 months.

In the second quarter, Wells reported record net income at $5.5 billion, or $0.98 per share, up 20% from the prior year. Revenue reached $21.4 billion, up $89 million from the prior year.

Return on equity (ROE), a key Buffett metric for evaluating banks, also increased 116 basis points to 14.02%. Return on average assets (ROA) increased 14 basis points to 1.55%.

The history ROE and ROA at Wells Fargo:

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Wells Fargo has a five-year per-share growth rate of 3.1% for revenue per share and 33.2% for EBITDA per share. See a history of revenue and earnings:

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IBM (IBM)

IBM is a new common holding. Buffett owns 68,121,984 shares with a market value of $13 billion. He began amassing the stake in 2011, and has been buying up shares in each quarter through the first quarter of 2013. To date he has an approximate 10% gain on his average purchase price.

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Watsa joined the IBM club in the second quarter of 2013, buying a mere 1,200 shares, with an average cost of $204 per share and average approximate gain of 6%.

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Though IBM missed earnings expectations in May, he told television network CNBC that he would not sells his shares because of the decrease, but would possibly buy more “from time to time.”

Though he typically avoids tech stocks, he had an epiphany about IBM after reading its annual 10-K for the 50th consecutive year.

Buffett told CNBC how he began to see the company differently all of a sudden: “Well, just like—just like I did with—just like I did with the railroads. And incidentally, the company laid it out extremely well. I don't think there's any company that's—that I can think of, big company, that's done a better job of laying out where they're going to go and then having gone there. They have laid out a road map and I should have paid more attention to it five years ago where they were going to go in five years ending in 2010. Now they've laid out another road map for 2015. They've done an incredible job.”

For the second quarter, IBM reported GAAP net income of $3.2 billion, down 17% from the prior year, and EPS of $2.91 per share, down 13% from the prior year. Revenue was $24.9 billion, down 3% from the prior year. As a result of not achieving a second-half gain, the company revised down its full-year EPS expectations.

IBM has a five-year per-share revenue growth rate of 6% and EBITDA growth rate of 9.5%. See its revenue and earnings history long term:

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IBM has a $208.1 billion market cap and a stock price of $189.97, down almost 8% over 12 months. Its P/E is 13.5, close to a three-year low. Its P/B of 11.72 has almost reached a 10-year high, and its P/S ratio is 2.11.

Wal-Mart (WMT)

Warren Buffett is holding 49,247,235 shares of Wal-Mart, valued at $3.67 billion. He has owned a stake since before 2009 and has only bought shares since then, with no new buys in the second quarter. He has an average 39% gain on his average purchase price.

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Prem Watsa holds 220,000 shares of Wal-Mart, valued at $16.4 million. The stake predates 2008, and he has not made changes to his positioning since then.

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Wal-Mart, a grocery store retail chain, has a $246.6 billion market cap and trades at $75.75 per share, up 1.75% over 12 months and near a 10-year high.

In the second quarter, Wal-Mart reported consolidated net sales below expectations in a challenging retail environment across all of its markets. Wal-Mart reported net sales of $116.2 billion, up 2.4% from the previous year, and total revenue of $116.9 billion, up 2.3% from the previous year. Net income was $4.1 billion, up 1.3%, and EPS increased 5.1% to $1.24.

The company lowered its full-year EPS guidance to a range of $5.10 to $5.30, from $5.20 to $5.40.

Wal-Mart has a five-year annual EBITDA per share growth rate of 9.9% and revenue per share growth rate of 8.4%. See the company’s revenue and earnings growth long term:

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The P/E of Wal-Mart is near a one-year low at 14.69, and P/S ratio is near a three-year high at 0.53. It has a P/B of 3.5.

Read about more Prem Watsa and Warren Buffett consensus stock picks tomorrow.

See Prem Watsa’s portfolio here. See Warren Buffett’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. If you are not a Premium Member, why not Take a 7-Day Free Trial?


Rating: 3.6/5 (10 votes)

Comments

netwall
Netwall - 1 year ago
Maybe this Prem guy is just mimicking Buffett's portfolio. Seems to be too large of a coincidence for him to be holding almost exact securities as Buffett.

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