As many of his peers such as Seth Klarman (Trades, Portfolio) take cover from the heated market, Prem Watsa (Trades, Portfolio) has acquired 19 new positions in the third quarter, selling none of his existing holdings and reducing only three.
Watsa expressed excitement in a Nov. 3 call with analysts about what he saw as strong potential for businesses in the U.S. under the current administration’s policies of reducing corporate tax rates to 20% and rolling back business regulation such as Dodd-Frank, Obamacare and “myriad" others. In addition to heavy infrastructure spending, the shifts had the “potential to boost the economy significantly in the U.S.," he said.
“Already sentiment among small business has improved dramatically and animal spirits in the U.S. are alive and well,” Watsa said.
The investor, who founded Canadian reinsurance company Fairfax Financial (TSX:FFH, Financial), also said improvement in the U.S. economy would diminish though not eliminate risk in China and Europe. In the past five years, the possibility of recession or depression in China and Europe played a part in his decision to fully hedge his portfolio, leading to billions of dollars in lost gains.
In alignment with his shift toward buying stocks in the third quarter, Watsa said that after playing defense in the past few years, his firm, often compared to Warren Buffett's Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), was ready to “play offense.”
“But we continue to think the new administration’s policies may make this a stock picker’s market,” Watsa said on the call.
Watsa did not rule out the possibility of a “hard market,” though. He has raised capital through the sale of a stake in ICICI Lombard that resulted in $1.7 billion in cash and the sale of First Capital, resulting in $1.4 billion, both of the proceeds going to holding companies.
“You’re talking about a powerful financial position as we meet this market,” Watsa said.
As of Sept. 30, Watsa’s cash stockpile totaled $17 billion, while 43% of his portfolio rested in cash he intended to spend on future opportunities.
The top new buys
Watsa purchased 365,000 shares of Alere Inc., which had an average stock price $50 in the third quarter. The holding consumes 1.52% of the portfolio.
Alere Inc. has a market cap of $4.47 billion; its shares were traded around $50.99 with and P/S ratio of 1.91.
Chicago Bridge & Iron Co. NV (CBI, Financial)
Watsa purchased 850,000 shares of Chicago Bridge & Iron, which had an average price of $15 in the quarter. The holding is 1.17% of the portfolio.
Chicago Bridge & Iron Co. NV has a market cap of $1.5 billion; its shares were traded around $14.80 with and P/S ratio of 0.17. The trailing 12-month dividend yield of Chicago Bridge & Iron Co. NV stocks is 1.42%.
Watsa purchased 250,000 shares of Cray Inc., which had an average price of $19 in the quarter. The holding is 0.4% of the portfolio.
Cray Inc. has a market cap of $746.090 million; its shares were traded around $18.45 with a P/E ratio of 47.31 and P/S ratio of 1.37. Cray Inc. had an annual average earnings growth of 1.70% over the past five years.
Watsa purchased 61,000 shares of Argan Inc., which had an average price of $63 in the quarter. The holding is 0.34% of the portfolio.
Argan Inc. has a market cap of $997.130 million; its shares were traded around $64.15 with a P/E ratio of 11.75 and P/S ratio of 1.18. The trailing 12-month dividend yield of Argan Inc. stocks is 1.53%. The forward dividend yield of Argan Inc. stocks is 1.52%. Argan Inc. had an annual average earnings growth of 27.10% over the past 10 years.
Watsa purchased 300,000 shars of RPX Corp., which had an average price of $13 for the quarter. The holding is 0.33% of the portfolio.
RPX Corp. has a market cap of $622.540 million; its shares were traded around $12.57 with a P/E ratio of 33.97 and P/S ratio of 1.92. The forward dividend yield of RPX Corp. stocks is 1.57%. RPX Corp. had an annual average earnings growth of 7.20% over the past five years.
See Prem Watsa (Trades, Portfolio)’s stock portfolio here.
