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Holly LaFon
Holly LaFon
Articles (10140)  | Author's Website |

Prem Watsa Axes Berkshire Hathaway, Buys 6

Watsa took renewed interest in stock market after eliminating hedges

Prem Watsa (Trades, Portfolio), an investor often compared to Warren Buffett (Trades, Portfolio), announced Tuesday that he left the core of his portfolio unchanged while investing in six new positions in the second quarter.

Watsa has more than 80% of his portfolio invested in three stocks, BlackBerry Ltd. (NYSE:BB), Resolute Forest Products Inc. (NYSE:RFP) and Kennedy-Wilson Holdings Inc. (KW), and did not buy or sell any of their shares in the quarter. BlackBerry gave Watsa’s investment vehicle Fairfax Financial (TSX:FFH) $159.3 million in losses in the first half of 2018. Shares of the technology company have declined 17% year to date.

Fairfax recorded $26 million unrealized gains on its investments in the first half, with $1.08 billion in realized gains. The Canada-based insurer sold several lucrative positions in the second quarter, including Intrepid Potash (NYSE:IPI), which granted a gain GuruFocus estimates around 126%. Berkshire Hathaway (NYSE:BRK.B), also conferred a sizable gain, as Fairfax bought most of its shares around $88 and sold out in the second quarter when the price averaged $195.

Watsa made a strong shift in his investment strategy in 2016 after holding hedges on his portfolio that mitigated gains for years out of concern about the economy. He then eliminated the hedges after President Trump won the presidential election, and his pro-business policies inspired more confidence.

In a 2017 shareholder letter, Watsa said:

“The new U.S. administration’s reduction in the corporate tax rate to 21%, accelerated depreciation for capital expenditures, roll back in regulation and potential massive infrastructure spending – combined with the fact that the U.S. has never had an eight year stretch of less than 2% real economic growth – could result in much higher economic growth in the next few years. Higher economic growth would result, we think, in higher profits for many companies, so that even though the indices may not go up significantly, we think this will be a ‘‘stock pickers’’ market in which a value investor like us can thrive. So we are back to playing offense again, recognizing of course that the stock market is not cheap.”

New buys

McDermott International Inc. (NYSE:MDR)

Watsa purchased 655,400 shares of the company, giving it 1.03% portfolio weight. The stock’s second-quarter share price averaged $20.

McDermott International Inc. has a market cap of $3.28 billion; its shares were traded around $18.18 with a P/E ratio of 9.46 and P/S ratio of 0.50.

General Motors Co. (NYSE:GM)

Watsa purchased 80,465 shares of the company, giving it 0.25% portfolio weight. The stock’s second-quarter share price averaged $39.

General Motors Co. has a market cap of $50.71 billion; its shares were traded around $35.94 with and P/S ratio of 0.36. The trailing 12-month dividend yield of General Motors Co. stocks is 4.25%. The forward dividend yield of General Motors Co. stocks is 4.20%. General Motors Co. had an annual average earnings growth of 20.10% over the past five years.

Seaspan Co. (NYSE:SSW)

Watsa purchased 231,922 shares of the company, giving it 0.19% portfolio weight. The stock’s second-quarter share price averaged $8.

Seaspan Co. has a market cap of $1.18 billion; its shares were traded around $8.61 with a P/E ratio of 6.59 and P/S ratio of 1.21. The trailing 12-month dividend yield of Seaspan Co. stocks is 5.82%. The forward dividend yield of Seaspan Co. stocks is 5.75%. Seaspan Co. had an annual average earnings growth of 7.30% over the past 10 years.

Envision Healthcare Corp. (NYSE:EVHC)

Watsa purchased 42,000 shares of the company, giving it 0.15% portfolio weight. The stock’s second-quarter share price averaged $41.

Envision Healthcare Corp. has a market cap of $5.45 billion; its shares were traded around $44.90 with and P/S ratio of 0.67. Envision Healthcare Corp. had an annual average earnings growth of 9.30% over the past 10 years.

Shire PLC (NASDAQ:SHPG)

Watsa purchased 7,400 shares of the company, giving it 0.1% portfolio weight. The stock’s second-quarter share price averaged $161.

Shire PLC has a market cap of $51.62 billion; its shares were traded around $168.33 with a P/E ratio of 11.29 and P/S ratio of 3.50. The trailing 12-month dividend yield of Shire PLC stocks is 0.62%. The forward dividend yield of Shire PLC stocks is 0.63%. Shire PLC had an annual average earnings growth of 15.80% over the past five years.

magicJack VocalTec Ltd. (NASDAQ:CALL)

Watsa purchased 122,450 shares of the company, giving it 0.08% portfolio weight. The stock’s second-quarter share price averaged $8.

magicjack Vocaltec Ltd. has a market cap of $138.170 million; its shares were traded around $8.53 with a P/E ratio of 24.37 and P/S ratio of 1.68.

See Prem Watsa (Trades, Portfolio)'s portfolio here.

About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


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