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Prem Watsa Buysing Two Insurance Companies; Top Holdings: JNJ, DELL, ICO, KFT, FTR, LVLT

December 10, 2010 | About:

From 1985 to 2009, under the leadership of Prem Watsa, Fairfax Financial Holdings has compounded its book value by 26% per year and its own stock has grew 22% per year.

If you follow the company, you will realize that the company has been very busy lately. Since the end of the quarter, his firm Fairfax Financial Holdings has announced two acquisitions of insurance companies:

The latest concerning Pacific Insurance Berhad, a Malaysian Insurance, according the companies press release on December 03, 2010:

Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) announced today that it has entered into a share purchase agreement pursuant to which it will acquire all of the shares of Malaysian insurer, The Pacific Insurance Berhad, for approximately US$64 million. Subject to the approval of the shareholders of the vendor, PacificMas Berhad, the transaction is expected to close in the first quarter of 2011.

“We are looking forward to having Pacific Insurance Berhad, one of Malaysia’s premier insurers, join the Fairfax family,” said Prem Watsa, Chairman and CEO. “Pacific has a strong presence in the Malaysian insurance sector and we look forward to working with Pacific’s excellent management team, led by its Chief Executive Officer Sonny Tan Siew Hock, to further develop their business and products.”

Pacific provides all classes of general insurance and is known for being a pioneer and a quality provider of medical insurance in Malaysia. Pacific is headquartered in Kuala Lumpur and was established in the 1950s when it was the Malaysian business arm of The Netherlands Insurance Company, then the 12th largest insurance company in the world. On closing, Pacific will join the Fairfax Asia group under the oversight of Fairfax Asia’s CEO, Mr. Ramaswamy Athappan.

Pacific has approximately RM120 million in its shareholder fund. The company has a national network across Malaysia with 18 branches, over 200 employees and an agency force of approximately 1,200 agents.

Earlier on, Fairfax announced it’s acquiring First Mercury Financial Corporation. Here is the press release:
TORONTO, ON and SOUTHFIELD, MI – October 28, 2010 – Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) and First Mercury Financial Corporation (NYSE: FMR) today announced that Fairfax and First Mercury have entered into a merger agreement pursuant to which Fairfax will acquire all of the outstanding shares of First Mercury common stock. First Mercury stockholders will receive $16.50 per share in cash, representing an aggregate transaction value of approximately $294 million. The price represents a premium of 45.2% to the closing price of First Mercury common stock on October 28, 2010, the day of this announcement, and a 67.3% premium to the closing price 30 days prior to the announcement of this transaction. The transaction is expected to close in the first quarter of 2011.

Like his idol Warren Buffett, Prem Watsa succeeded by playing wonder with the insurance float of his insurance subsidiaries. Like Buffett, Watsa invests in a wide spectrum of asset classes. During the financial crisis of 2007 – 2008, the company made about $2 billion by taking CDS positions that bet against the collapse of the US housing market.

Of course, his investment involves investing in stocks. As of September 30, these are Prem Watsa’s top holdings:

No. 1: Johnson & Johnson (NYSE:JNJ), Weightings: 18.79% - 6,884,300 Shares

Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. Johnson & Johnson has a market cap of $170.43 billion; its shares were traded at around $62.06 with a P/E ratio of 13 and P/S ratio of 2.8. The dividend yield of Johnson & Johnson stocks is 3.5%. Johnson & Johnson had an annual average earning growth of 10.8% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 4.5-star.

No. 2: Dell Inc. (DELL), Weightings: 13.02% - 22,817,389 Shares

Dell Inc. is a premier provider of products and services required for customers worldwide to build their information-technology and Internet infrastructures. Dell Inc. has a market cap of $26.54 billion; its shares were traded at around $13.649 with a P/E ratio of 10.1 and P/S ratio of 0.5. Dell Inc. had an annual average earning growth of 4.1% over the past 10 years.

No. 3: International Coal Group Inc. (ICO), Weightings: 10.56% - 45,155,588 Shares

ICG is a producer of coal in Northern and Central Appalachia and the Illinois Basin. International Coal Group Inc. has a market cap of $1.67 billion; its shares were traded at around $8.17 with a P/E ratio of 35.5 and P/S ratio of 1.5.

No. 4: Kraft Foods Inc. (KFT), Weightings: 7.3% - 5,365,751 Shares

Kraft Foods, Inc. is the largest branded food and beverage company headquartered in the U. Kraft Foods Inc. has a market cap of $54.22 billion; its shares were traded at around $31.09 with a P/E ratio of 15.4 and P/S ratio of 1.3. The dividend yield of Kraft Foods Inc. stocks is 3.8%. Kraft Foods Inc. had an annual average earning growth of 1.7% over the past 5 years.

No. 5: FRONTIER COMMUN CP (NASDAQ:FTR), Weightings: 6.69% - 18,620,000 Shares

FRONTIER COMMUNICATIONS CORPORATION, formerly Citizens Communications Company, is a full-service communications provider and one of the largest rural local exchange telephone companies in the country. Frontier Commun Cp has a market cap of $9.32 billion; its shares were traded at around $9.38 with a P/E ratio of 16.2 and P/S ratio of 4.3. The dividend yield of Frontier Commun Cp stocks is 7.9%. Frontier Commun Cp had an annual average earning growth of 2.9% over the past 10 years.

No. 6: Level 3 Communications Inc. (NYSE:LVLT), Weightings: 5.77% - 139,276,421 Shares

Level 3 Communications is an international communications and information services company. Level 3 Communications Inc. has a market cap of $1.64 billion; its shares were traded at around $0.98 with and P/S ratio of 0.4.

Check out his other stocks by clicking on Prem Watsa.

Rating: 4.0/5 (12 votes)


Kfh227 - 6 years ago    Report SPAM

Watsa, Buffet and many other are buying JNJ.

I see it at beign worth well over $70. There currently is no speculative component. I see it as being worht $100 and maybe even more.

With all the top gurus buying though, there must be more to this puzzle. I wish I knew what pieces I am missing though. All I know is that call options trade for next to nothing and it is a very good way to gain leverage in JNJ.

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