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James Li
James Li
Articles (1322)  | Author's Website |

Prem Watsa's Top 5 Buys in the 1st Quarter

Canadian guru releases portfolio

Prem Watsa (Trades, Portfolio), the founder of Fairfax Financial Holdings Ltd. (TSX:FFH), disclosed this week that his company’s top five new buys during the first quarter were in Crescent Capital BDC Inc. (NASDAQ:CCAP), Franklin Resources Inc. (NYSE:BEN), Alphabet Inc. (NASDAQ:GOOGL)(NASDAQ:GOOG), Chevron Corp. (NYSE:CVX) and Booking Holdings Inc. (NASDAQ:BKNG).

Watsa earned an MBA at the University of Western Ontario’s Ivey School of Business. In 1985, he met Francis Chou (Trades, Portfolio), who told Watsa that Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio) made money by using insurance float.

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The Fairfax chairman said in his 2019 annual letter that the company's book value per share increased over 14% for the year ending December 2019. Additionally, the investment portfolio achieved approximately an 8% return since inception. As of March 2020, Watsa’s $1.44 billion equity portfolio contains 57 stocks, of which 19 represent new holdings. The top three sectors in terms of weight are financial services, technology and real estate, representing 57.86%, 16.87% and 12.44% of the equity portfolio.

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Crescent Capital

Fairfax purchased 3,796,246 shares of Crescent Capital, giving the stake a 2.54% weight in the equity portfolio. Shares averaged $13.88 during the first quarter.

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The Los Angeles-based business development company seeks to achieve its investment objectives by investing in secured debt, unsecured debt and equity securities of private U.S. middle-market companies. According to GuruFocus, the company’s equity-to-asset ratio of 0.55 and debt-to-equity ratio of 0.79 are underperforming over 63% of global asset management competitors.

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Michael Price (Trades, Portfolio) also has a holding in Crescent Capital.

Franklin Resources

Fairfax purchased 1 million shares of Franklin Resources, giving the position 1.16% weight in the equity portfolio. Shares averaged $23.06 during the first quarter.

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The San Mateo, California-based company provides investment services for individual and institutional investors under brands like Franklin Templeton, Fiduciary and Darby. GuruFocus ranks Franklin Resources’ financial strength 8 out of 10 on the back of strong interest coverage of over 60 and a solid Altman Z-score of 3.51.

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Gurus with large holdings in Franklin Resources include David Abrams (Trades, Portfolio)’ Abrams Capital Management and the T Rowe Price Equity Income Fund (Trades, Portfolio).

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Alphabet

Fairfax purchased 13,731 Class A shares of Alphabet, giving the position 1.10% weight in the equity portfolio. Shares averaged $1,359.46 during the first quarter.

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Watsa mentioned in his 2019 annual letter that the FAANG stocks had strong growth over the past 10 years. For example, Alphabet’s revenue has grown approximately 19.40% per year on average over the past 10 years and approximately 21.50% per year on average over the past three years, a rate that outperforms 69.82% of global competitors.

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GuruFocus ranks Alphabet’s profitability 10 out of 10 on several positive investing signs, which include a four-star business predictability rank, a return on assets that outperforms 83.27% of global competitors and an operating margin that outperforms 80.12% of global interactive media companies despite contracting over the past 10 years.

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Chevron

Fairfax purchased 155,800 shares of Chevron, giving the holding 0.78% weight in the equity portfolio. Shares averaged $99.58 during the first quarter.

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The San Ramon, California-based company explores for, produces and refines oil and natural gas products worldwide. GuruFocus ranks Chevron’s profitability 6 out of 10: Operating margins are underperforming 64.65% of global competitors, although the company has net margins and returns on assets outperforming over 63% of global energy companies.

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Booking

Fairfax purchased 6,500 shares of Booking, giving the position 0.61% weight in the equity portfolio. Shares averaged $1,767.55 during the first quarter.

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GuruFocus ranks the Norwalk, Connecticut-based travel giant’s profitability 10 out of 10 on several positive investing signs, which include a 3.5-star business predictability rank and operating margins that are outperforming over 96% of global competitors.

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Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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