Prem Watsa (Trades, Portfolio) added more action to his statements that he felt buoyant about markets with the election of Donald Trump, buying his biggest holding in five years during the first quarter, after announcing earlier in the year that he had removed the full hedges on his portfolio that had limited his annual returns.
Fairfax Financial Holdings (TSX:FFH, Financial), the Canadian insurance and investment management company Watsa founded in 1985, lost $1.2 billion in 2016, including $1.19 billion on equity hedges and short positions of the S&P 500 and several indexes. Watsa began the hedges in 2010 due to fear of market conditions, and the persistent rise of the market consequently led to heavy losses that reduced his 15-year average return to 9.8% from 18.3%. Putting an end to his concerns was a return to what he saw as forthcoming pro-business policies with the Republican presidential victory.
“Higher economic growth would result, we think, in higher profits for many companies, so that even though the indices may not go up significantly, we think a value investor like us can ply our trade again with less of a concern of economic collapse,” Watsa wrote his 2016 annual shareholder letter.
The investor also emerged from the market sidelines in the first quarter after spending years buying positions worth tenths and hundredths of percents of his portfolio. The new stock, Intrepid Potash Inc. (IPI, Financial), accounts for 2.3% of the portfolio, the largest since he bought Resolute Forest Products (RFP, Financial), worth 11.2% of the portfolio at the time, in the second quarter of 2012.
Watsa purchased 16,666,667 shares of Intrepid Potash around its average first-quarter share price of $2. The position cost approximately $28.5 million and composes 12.89% of the company’s shares outstanding.
Watsa holds 31 positions in his portfolio, which is 48.4% concentrated in technology stocks primarily because his top position, BlackBerry Ltd. (BBRY, Financial), has a 29.2% weighting and IBM (IBM, Financial) has a 19.2% weighting.
Intrepid Potash is a $295.6 million market cap company that focuses mainly on formulations containing potash, the material used in fertilizers for nutrient-deficient soil that increases crop yields, an integral need for population growth. In addition to agriculture, the company has markets in animal feed and industrial businesses. It also corners the U.S. market of muriate of potash,
Intrepid has traded around all-time lows since near the end of 2016, following its business performance. The company has seen two consecutive years of revenue declines and net losses, though it has $20.8 million in cash and relatively low debt of $88.0 million at the end of the first quarter. The company also has the corner on muriate of potash, a common potassium fertilizer used in production of a variety of crops. Supply of the product has nonetheless overwhelmed demand in recent years, contributing to lower prices and weaker results for Intrepid and likely becoming a selling point for an investor who often seeks companies undergoing a setback he perceives as temporary.
Intrepid has also diversified its business into the water market, estimating millions in annual revenue from the liquid in coming years.Ă‚
In its full-year financial results of 2016, Intrepid management forecast that rising potash prices that began toward the end of the year would continue through 2017. Intrepid CEO Joynayvaz said the company positioned itself during the year to sell into more high-margin deals and gain other advantages from the improved selling environment.
In addition to Intrepid, Watsa purchased three other stocks in smaller quantities, each of which reflected 0.2% of the portfolio. The second-largest consisted of 638 shares of Sherwin-Williams Co. (SHW, Financial) with a total value of $212,000. His 1,344 new shares of Thermo Fisher Scientific Inc. (TMO, Financial) had a value of $206,000, and his 1,900 shares of Carlisle Companies (CSL, Financial) had a value of $202 million.
See Prem Watsa (Trades, Portfolio)’s portfolio here.
