Prem Watsa, often called the “Canadian Warren Buffett,” is the founder of hedge fund Fairfax Financial, and insurance and investing corporation. Unlike Buffett, he likes technology stocks and as of the third quarter, they are 27.4% of his portfolio, the largest sector represented. Learn more about Prem Watsa’s current view of the investing world and more about his process in this GuruFocus interview with him.
The largest technology stocks in his equity portfolio are: Dell Inc. (DELL, Financial), Research In Motion (RIMM, Financial) and Motorola Mobility Holdings (MMI, Financial).
Dell Inc. (DELL)
Dell was founded in 1984 based on a business model of selling computers directly to customers, for maximum efficiency and effectiveness. Today, Dell manages its business in four global operating segments: Large Enterprise, Public, Small and Medium Business, and Consumer. It also has far more product offerings than PCs, which it started out with. Dell’s business has expanded to products and services including: networking, storage, services (transactional, outsourcing, project-based), software and peripherals, commercial and consumer mobility, financial services, product development, and manufacturing and materials.
In its annual 10-K from March 18, 2010, Dell reported that its business strategy is to shift its portfolio to products and services that provide higher-margin and recurring streams of revenue over time. To that end, it has concentrated on growing its enterprise solutions and services segments, which has contributed to its operating margin improvements.
While Dell’s revenue from its products is decreasing, services revenue, including software related, has been increasing. For fiscal 2010 compared to fiscal 2009, Dell’s product revenue decreased 17%, and services revenue increased 5%, primarily a result of its acquisition of Perot Systems. Services revenue is tied to hardware revenue, however. Excluding revenues from Perot Systems, services revenue decreased 2%.
Third-quarter enterprise solutions and services revenue reached an all-time high of $4.7 billion, according to results reported November 15. The segment represented almost 50% of its margin.
Dell anticipates meeting the lower range of its 1 to 5% full fiscal-year growth due to a slow economy and having to work out an industry-wide shortage of storage drives due to recent flooding in Thailand.
Dell has generated robust cash flow for the last ten years and its margins all improved from fiscal 2010 to fiscal 2011.
Prem Watsa commented on his main reasons for liking Dell in his interview with GuruFocus: “For a similar reason, we bought Dell (DELL) when Michael Dell came back. Here's a company that went from 0 to $60 billion in revenue, and tons of hurdles he had to overcome with his management team, and we just figure that the guy who's done that, and still is a significant shareholder, so focused, will figure his or her way out. Of course the valuation is cheap, all of that, but we're very focused on management, and the founder of the company who's had such a wonderful track record, not that they're infallible, but we would bet on them.”
Watsa initially bought Dell shares in the fourth quarter of 2007, and increased his stake to 34,763,489 shares by the second quarter of 2009. He has sold several times since then, but has not acquired any new shares since the second quarter of 2009. He owns 22,693,489 shares as of the end of the third quarter 2011.
Research In Motion (RIMM)
Research In Motion is a world leader in the mobile communications market and has a history of developing breakthrough wireless solutions. Research In Motion Ltd. has a market cap of $9.1 billion; its shares were traded at around $17.36 with a P/E ratio of 3.1 and P/S ratio of 0.5. Research In Motion Ltd. had an annual average earnings growth of 53.4% over the past 5 years.
UK-based research firm Canalys reported on November 1 that RIM’s U.S. market share fell from 24% in the third quarter of 2010 to 9% in the third quarter 2011, and it was below 10% for the first time. RIM’s volumes also declined 58% year over year.
“The picture for RIM in other parts of the world is clearly more positive. It grew 59% in EMEA and 56% in APAC over a year ago, largely driven by the continued popularity of BBM, its BlackBerry Messenger service. The Middle East and Africa and Southeast Asia were particular bright spots, and while October’s outage, focused on EMEA particularly, has hurt RIM’s reputation for reliability we do not expect it to have a substantial impact and expect a decent Q4 performance there,” said UK-based Canalys Senior Analyst, Tim Shepherd.
Research In Motion has by far the smallest P/E of its competitors, at 3.08, compared to 13.6 for Apple, and 22.88 for Nokia. Over the last five years, the stock has dropped 62%, and Tuesday trades for $18, a low not seen since 2005. The company’s earnings per share, however, are at a record $6.52 for fiscal 2011, an increase from $4.41 for fiscal 2010. Return on equity, return on assets and net income have each also reached all-time highs.
RIM has a strong balance sheet, with zero long-term debt, $281 million in long-term liabilities, though its cash decreased from about $2.9 billion in the quarter ended May 28, 2011 to about $1.4 billion in the quarter ended August 27, 2011. The company spent the money primarily on Nortel’s patent portfolio and capital expenditures.
Watsa also liked RIM’s management, as he said in his GuruFocus interview: “Particularly right now for RIMM, getting new management would be a disaster, would be the biggest mistake that the board would make.”
RIM is the fifth-largest holding in Watsa’s portfolio and is a relatively new addition. He bought 2,065,000 shares at an average of $50 in the third quarter 2010, 6,308,300 in the second quarter 2011 at about $44 per share, and 3,425,000 shares at about $27 per share.
Motorola Mobility Holdings (MMI)
Watsa bought 37,500 shares of Motorola Mobility Holdings in the third quarter 2011. Google announced that it would be acquiring the company in mid-August, at which point the stock price immediately jumped from about $25 to about $38, so there is no way to know whether Watsa bought the stock before or after the announcement. MMI was created as a new company after the spinning off of Motorola Inc.’s handset and television set-top box segment.
Motorola Mobility Holdings’ shareholders voted in favor of the Google merger on November 17. Google will acquire the company for $40 per share in cash, or $12.5 billion in total. The deal should complete by year-end 2011 or early 2012.
To see more of Prem Watsa's portfolio holdings, go here.
Also check out:
The largest technology stocks in his equity portfolio are: Dell Inc. (DELL, Financial), Research In Motion (RIMM, Financial) and Motorola Mobility Holdings (MMI, Financial).
Dell Inc. (DELL)
Dell was founded in 1984 based on a business model of selling computers directly to customers, for maximum efficiency and effectiveness. Today, Dell manages its business in four global operating segments: Large Enterprise, Public, Small and Medium Business, and Consumer. It also has far more product offerings than PCs, which it started out with. Dell’s business has expanded to products and services including: networking, storage, services (transactional, outsourcing, project-based), software and peripherals, commercial and consumer mobility, financial services, product development, and manufacturing and materials.
In its annual 10-K from March 18, 2010, Dell reported that its business strategy is to shift its portfolio to products and services that provide higher-margin and recurring streams of revenue over time. To that end, it has concentrated on growing its enterprise solutions and services segments, which has contributed to its operating margin improvements.
While Dell’s revenue from its products is decreasing, services revenue, including software related, has been increasing. For fiscal 2010 compared to fiscal 2009, Dell’s product revenue decreased 17%, and services revenue increased 5%, primarily a result of its acquisition of Perot Systems. Services revenue is tied to hardware revenue, however. Excluding revenues from Perot Systems, services revenue decreased 2%.
Third-quarter enterprise solutions and services revenue reached an all-time high of $4.7 billion, according to results reported November 15. The segment represented almost 50% of its margin.
Dell anticipates meeting the lower range of its 1 to 5% full fiscal-year growth due to a slow economy and having to work out an industry-wide shortage of storage drives due to recent flooding in Thailand.
Dell has generated robust cash flow for the last ten years and its margins all improved from fiscal 2010 to fiscal 2011.
Prem Watsa commented on his main reasons for liking Dell in his interview with GuruFocus: “For a similar reason, we bought Dell (DELL) when Michael Dell came back. Here's a company that went from 0 to $60 billion in revenue, and tons of hurdles he had to overcome with his management team, and we just figure that the guy who's done that, and still is a significant shareholder, so focused, will figure his or her way out. Of course the valuation is cheap, all of that, but we're very focused on management, and the founder of the company who's had such a wonderful track record, not that they're infallible, but we would bet on them.”
Watsa initially bought Dell shares in the fourth quarter of 2007, and increased his stake to 34,763,489 shares by the second quarter of 2009. He has sold several times since then, but has not acquired any new shares since the second quarter of 2009. He owns 22,693,489 shares as of the end of the third quarter 2011.
Research In Motion (RIMM)
Research In Motion is a world leader in the mobile communications market and has a history of developing breakthrough wireless solutions. Research In Motion Ltd. has a market cap of $9.1 billion; its shares were traded at around $17.36 with a P/E ratio of 3.1 and P/S ratio of 0.5. Research In Motion Ltd. had an annual average earnings growth of 53.4% over the past 5 years.
UK-based research firm Canalys reported on November 1 that RIM’s U.S. market share fell from 24% in the third quarter of 2010 to 9% in the third quarter 2011, and it was below 10% for the first time. RIM’s volumes also declined 58% year over year.
“The picture for RIM in other parts of the world is clearly more positive. It grew 59% in EMEA and 56% in APAC over a year ago, largely driven by the continued popularity of BBM, its BlackBerry Messenger service. The Middle East and Africa and Southeast Asia were particular bright spots, and while October’s outage, focused on EMEA particularly, has hurt RIM’s reputation for reliability we do not expect it to have a substantial impact and expect a decent Q4 performance there,” said UK-based Canalys Senior Analyst, Tim Shepherd.
Research In Motion has by far the smallest P/E of its competitors, at 3.08, compared to 13.6 for Apple, and 22.88 for Nokia. Over the last five years, the stock has dropped 62%, and Tuesday trades for $18, a low not seen since 2005. The company’s earnings per share, however, are at a record $6.52 for fiscal 2011, an increase from $4.41 for fiscal 2010. Return on equity, return on assets and net income have each also reached all-time highs.
RIM has a strong balance sheet, with zero long-term debt, $281 million in long-term liabilities, though its cash decreased from about $2.9 billion in the quarter ended May 28, 2011 to about $1.4 billion in the quarter ended August 27, 2011. The company spent the money primarily on Nortel’s patent portfolio and capital expenditures.
Watsa also liked RIM’s management, as he said in his GuruFocus interview: “Particularly right now for RIMM, getting new management would be a disaster, would be the biggest mistake that the board would make.”
RIM is the fifth-largest holding in Watsa’s portfolio and is a relatively new addition. He bought 2,065,000 shares at an average of $50 in the third quarter 2010, 6,308,300 in the second quarter 2011 at about $44 per share, and 3,425,000 shares at about $27 per share.
Motorola Mobility Holdings (MMI)
Watsa bought 37,500 shares of Motorola Mobility Holdings in the third quarter 2011. Google announced that it would be acquiring the company in mid-August, at which point the stock price immediately jumped from about $25 to about $38, so there is no way to know whether Watsa bought the stock before or after the announcement. MMI was created as a new company after the spinning off of Motorola Inc.’s handset and television set-top box segment.
Motorola Mobility Holdings’ shareholders voted in favor of the Google merger on November 17. Google will acquire the company for $40 per share in cash, or $12.5 billion in total. The deal should complete by year-end 2011 or early 2012.
To see more of Prem Watsa's portfolio holdings, go here.
Also check out:
