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James Li
James Li
Articles (1532) 

Prem Watsa's Top 5 Trades of the 4th Quarter

Canadian investing titan buys Berkshire holding Merck

Prem Watsa (Trades, Portfolio), the founder and chairman of Fairfax Financial Ltd. (TSX:FFH), disclosed this week that his insurance company's top five trades during the fourth quarter featured new positions in Pfizer Inc. (NYSE:PFE) and Merck & Co. (NYSE:MRK) and the closure of his holdings in Fitbit Inc. (NYSE:FIT), Gildan Activewear Inc. (NYSE:GIL) and NetEase Inc. (NASDAQ:NTES).

A University of Western Toronto Ivey School of Business MBA graduate, Watsa met Francis Chou (Trades, Portfolio) in 1985, who casually told him that Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio) made money through "insurance float" investing. As of December 2020, Fairfax's $2.25 billion equity portfolio contains 59 stocks, with 10 new positions and a turnover ratio of 2%.


Fairfax's top sector in terms of weight is financial services with a weight of 52.34%. Other major sectors include technology, real estate and materials, representing 16.80%, 10.77% and 8.93% of the equity portfolio.



Fairfax purchased 300,900 shares of Pfizer (NYSE:PFE), allocating 0.49% of the equity portfolio to the position. Shares averaged $36.69 during the fourth quarter.


GuruFocus ranks the New York-based drug manufacturer's profitability 7 out of 10: Even though the company's three-year revenue growth rate underperforms over 66% of global competitors, Pfizer's profit margins and returns are outperforming over 80% of global drug manufacturers.


Gurus with large holdings in Pfizer include Vanguard Health Care Fund (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio).


Berkshire axed its Pfizer stake during the fourth quarter, selling 3,711,780 shares.



Fairfax purchased 122,900 shares of Merck (NYSE:MRK), giving the position 0.45% equity portfolio space. Shares averaged $80.13 during the fourth quarter.


GuruFocus ranks the Kenilworth, New Jersey-based drug manufacturer's profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7 and profit margins that outperform over 80% of global competitors.


Berkshire added 6,294,333 shares of Merck during the quarter, increasing the position 28.1% to 28,697,435 shares.



Fairfax sold 2.15 million shares of Fitbit (NYSE:FIT), trimming 0.84% of the equity portfolio. Shares averaged $7.05 during the fourth quarter.


GuruFocus ranks the San Francisco-based health and fitness hardware company's financial strength 5 out of 10: Although the company's cash-to-debt ratio outperforms over 70% of global competitors, Fitbit has a low Piotroski F-score of 2 and a weak Altman Z-score of 0.92.


Gildan Activewear

Having purchased 730,000 shares of Gildan Activewear (NYSE:GIL) during the second quarter of 2020, Fairfax sold the shares during the fourth quarter of 2020. The shares averaged $24.66 during the fourth quarter, up from the second-quarter average of $14.74.


GuruFocus ranks the Montreal-based apparel manufacturer's financial strength 4 out of 10: Although the company has a high Altman Z-score of 3.55, Gildan also has a low Piotroski F-score of 3 and debt ratios that underperform over 60% of global competitors.



Fairfax sold 72,500 shares of NetEase (NASDAQ:NTES), trimming the equity portfolio 0.37%. Shares averaged $89.69 during the fourth quarter.


GuruFocus ranks the Hangzhou, Zhejiang-based interactive media company's profitability 10 out of 10 on several positive investing signs, which include a five-star business predictability rank and profit margins and returns outperforming over 77% of global competitors.


Disclosure: Author is long Merck and Pfizer.

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