Prem Watsa (Trades, Portfolio) is often considered the “Warren Buffett (Trades, Portfolio) of Canada” for his record of compounding Fairfax Financial’s book value by 20% annually since 1985 and his view of investing.
As a devotee of Benjamin Graham, the founder of value investing, Watsa historically purchased stakes in large stable companies and held for the long term. Lately, he has shown a penchant for buying wounded companies at low prices and waiting long periods for them to recover. One example is Blackberry, the former smartphone maker that fell from grace in 2011 when it could not compete with the ascendance of the iPhone. Watsa invested in 2013 when its shares traded for a small fraction of their 2008 peak and had 36% of his portfolio weighted in the company at the end of the second quarter, still awaiting price appreciation.
Around the same time, the implosion in the European banking sector drew him. Watsa bet on the Bank of Ireland in 2011, and started investments in several beaten-down financials in Greece in 2013.
To be sure, Watsa favors extremely cheap situations. Unsurprisingly, his portfolio contains plentiful stocks with low price-earnings ratios, one of investors’ primary indicators of value. Of the 33 stocks in Watsa’s portfolio, 12 have price-earnings ratios below 20, including three new holdings.
Those with the lowest price-earnings ratios are: Seaspan Corp. (SSW, Financial), POSCO (PKX, Financial), McDermott International Inc. (MDR, Financial), CenturyLink Inc. (CTL, Financial) and Resolute Forest Products Inc. (RFP, Financial).
Seaspan Corp. (SSW, Financial)
Seaspan has a price-earnings ratio of only 6.97. A new stock to the portfolio, Watsa added 231,922 shares in the second quarter when the price averaged $9 per share. The holding represents 0.19% of his reported portfolio.
Seaspan operates a fleet of containerships based in the Marshall Islands. It has a market cap of $1.26 billion; its shares were traded around $9.16 Wednesday with a price-sales ratio of 1.31. The trailing 12-month dividend yield of Seaspan Corp. 5.46%. The forward dividend yield of Seaspan Corp. is 5.53%. Seaspan Corp. had an annual average earnings growth of 7.30% over the past 10 years.
Posco has a price-earnings ratio of 8.09, close to a two-year low. Watsa trimmed the position by 2,879 shares in the first quarter to 189,000 shares, cutting it to 1.12% of the portfolio.
The Korean steel company has a market cap of $21.16 billion; its shares were traded around $67.01 Wednesday with a price-sales ratio of 0.37. The trailing 12-month dividend yield of Posco is 2.74%. The forward dividend yield of Posco is 1.98%. Bottom of Form
McDermott International Inc. (MDR, Financial)
Another second-quarter buy, McDermott International Inc. occupies 1.03% space in the portfolio at 655,400 shares. Its share price for the quarter averaged $20.
The oil and gas services company has a market cap of $3.42 billion; its shares were traded around a one-year low at $18.93 Wednesday with a price-sales ratio of 0.53.
CenturyLink Inc. (CTL, Financial)
CenturyLink’s price-earnings ratio stands at 10.07. Watsa added 112,000 shares of the company in the second quarter, bringing the position to 1,959,100 shares. The stake represents 2.93% of the portfolio.
Telecommunications company CenturyLink has a market cap of $24.56 billion; its shares were traded around $22.74 Wednesday with a price-sales ratio of 0.92. The trailing 12-month dividend yield of CenturyLink Inc. is 9.52%. The forward dividend yield of CenturyLink Inc. is 9.33%.
Resolute Forest Products Inc. (RFP, Financial)
Resolute Forest Products has a price-earnings ratio of 10.93 and at 25.25%, it qualifies as the largest stock with a low price-earnings ratio in Watsa’s portfolio. He has not traded the stock since the second quarter of 2016.
The Canadian forest products company has a market cap of $1.26 billion; its shares were traded around $13.95 Wednesday with a price-sales ratio of 0.38.
