In this article, we will discuss the 10 best stocks to buy according to billionaire Prem Watsa. To skip the details about Prem Watsa’s history and investment philosophy, go directly to the 5 Best Stocks to Buy According to Billionaire Prem Watsa.
Prem Watsa is the founder, Chairman, and CEO of Fairfax Financial Holdings. Some call the Canadian-Indian billionaire the ‘Canadian Warren Buffett’ due to his investment philosophy’s striking similarity to that of the CEO of Berkshire Hathaway Inc. (NYSE:BRK-B).
Born in 1950, Watsa graduated from the Indian Institute of Technology (IIT) Madras with a degree in chemical engineering. He moved to London, Ontario, and completed his MBA from the Richard Ivey School of Business at the University of Western Ontario. After completing his MBA, Watsa joined an insurance company but left it in 1984 to start an investment firm with his ex-boss. A year later, he bought a Canadian trucking insurance company that was on the edge of foreclosure and renamed the entity Fairfax Financial Holdings.
Just like Omaha-based Berkshire Hathaway Inc (NYSE:BRK-B), Fairfax Holdings has an interest in property and casualty insurance. Furthermore, the hedge fund has stakes in some of the leading companies in the world, like Alibaba Group Holding Limited (NYSE:BABA), BlackBerry Limited (NYSE:BB), and Atlas Corp. (NYSE:ATCO). According to Fortune, Prem Watsa’s worth stands at $1.1 billion as of April 17.
Our Methodology
In this article, we will be discussing the top 10 stock picks of Prem Watsa’s Fairfax Financial Holdings. We picked these stocks from the Q4 13F portfolio of Fairfax Financial Holdings. These top 10 holdings have a cumulative value of $2.89 billion and occupy 91% of Watsa’s portfolio.
The hedge fund data discussed is based on the 924 hedge funds tracked by Insider Monkey at the end of Q4 2021.
10 Best Stocks to Buy According to Billionaire Prem Watsa
10. Pfizer Inc. (NYSE:PFE)
Prem Watsa’s Fairfax Financial Holdings’ Stake Value: $23,669,000
Percentage of Prem Watsa’s Fairfax Financial Holdings’ 13F Portfolio: 0.75%
Number of Hedge Funds as of December 31: 83
Pfizer Inc. (NYSE:PFE), a New York-based pharmaceutical and biotechnology corporation, has been at the forefront of the COVID-19 pandemic due to its Pfizer-BioNTech vaccine. Pfizer Inc. (NYSE:PFE) became a constituent of Fairfax Financial Holdings in Q4 2020.
Since September 2020, the stock price of Pfizer Inc. (NYSE:PFE) has increased by over 53.98%, as opposed to the S&P 500 Index’s rise of 29.75% during the same period. Pfizer Inc. (NYSE:PFE) is currently working on making children between five to 11 years old eligible for the booster dose of the vaccine. A study revealed a six times rise in antibody levels against the original variant of the virus one month after the first dose of the booster was received. Pfizer intends to use the findings of this research to ask the Food and Drug Administration (FDA) for emergency approval of the COVID-19 vaccine booster dose. The approval would make 28 million children eligible for the booster dose.
ClearBridge Investments shared its stance on Pfizer Inc. (NYSE:PFE) in its Q4 2021 investor letter. Here’s what the investment management firm said:
“While the level of general turnover abated as we progressed through 2021, it remained high in one area: post-COVID-19 recovery plays. The concept behind this investment thesis was, and still is, straightforward: with the advent of effective vaccines, the path from pandemic to endemic is just a matter of time. As this transition occurs, the estimated excess savings of over $2 trillion built up on U.S. consumer balance sheets will unlock dramatic pent-up demand for experiences, especially global travel. This investment case seemed especially compelling when the Pfizer vaccine positively surprised markets in November 2020. As a result, we made post-COVID-19 stocks (which were trading well below our estimate of recovery value) a sizable theme within the portfolio. We understood this to be a more aggressive tilt in positioning because it required a major improvement in demand to catalyze fundamentals and drive price toward higher business values. While we accepted that recovery would not be smooth and that it would take time to deploy vaccines both domestically and globally, we decided that recovery was the logical path of least resistance and we were being well compensated for these risks.
What we did not account for, however, was vaccine hesitancy and the risk of further infection waves. As a result, the first variant wave, Delta, was a negative surprise to both the market and our team. When the risk surfaced, we immediately updated our probability-driven models and debated how we should react. The resulting conclusion was that the recovery would be delayed and that we should reduce our exposure quickly, subsequently targeting the most aggressive recovery stocks such as cruise lines. We again acted swiftly and decisively to the positive surprise that Pfizer had delivered a high-efficacy antiviral COVID-19 pill. This pill should greatly reduce COVID-19 severity risks globally, increasing the probability of a global travel recovery in 2022. While this is still true, the emergence of the highly mutated Omicron variant set off another infection wave which spurred us to again act quickly and further reduce our risk exposure. This back-and-forth may sound exhausting, but it highlights our compulsion to act if we determine a surprise has a large enough impact on the probabilities that power our valuation-driven investment cases.
Of the 924 hedge funds in Insider Monkey’s database, 83 reported owning a stake in Pfizer Inc. (NYSE:PFE) at the end of Q4 2021.
9. H&R Block, Inc. (NYSE:HRB)
Prem Watsa’s Fairfax Financial Holdings’ Stake Value: $26,408,000
Percentage of Prem Watsa’s Fairfax Financial Holdings’ 13F Portfolio: 0.84%
Number of Hedge Funds as of December 31: 29
H&R Block, Inc. (NYSE:HRB) is a tax preparation company based out of Kansas City, Missouri. The company operates in the US, Canada, and Australia and has nearly 12,000 retail tax offices globally.
On April 5, H&R Block, Inc. (NYSE:HRB) made a major announcement stating that Jill Cress will become a part of the company as Chief Marketing and Experience Officer from May 2. Cress has previously gained considerable experience through leading PayPal Holdings, Inc. (NASDAQ:PYPL) as Vice President of Brand Marketing. During her tenure, she revamped the brand strategy for the PayPal and Venmo brands. She has also led the marketing function for National Geographic and Mastercard Incorporated (NYSE:MA).
For Q2 2022, H&R Block, Inc. (NYSE:HRB) posted an EPS of -$1.02, beating the consensus estimate by $0.21. Furthermore, the company also surpassed the revenue estimates by $514K. H&R Block, Inc. (NYSE:HRB) became a part of Prem Watsa’s portfolio in Q1 2021. Since January 2021, the stock price has recorded a gain of over 68.6%, outperforming the S&P 500 Index.
Apart from H&R Block, Inc. (NYSE:HRB), popular companies like Alibaba Group Holding Limited (NYSE:BABA), BlackBerry Limited (NYSE:BB), and Atlas Corp. (NYSE:ATCO) are also a part of Prem Watsa’s Q4 portfolio.
8. Franklin Resources, Inc. (NYSE:BEN)
Prem Watsa’s Fairfax Financial Holdings’ Stake Value: $33,470,000
Percentage of Prem Watsa’s Fairfax Financial Holdings’ 13F Portfolio: 1.07%
Number of Hedge Funds as of December 31: 29
Franklin Resources, Inc. (NYSE:BEN) is the world’s biggest provider of investment advisory services to financial institutions like mutual funds, retirement funds, and separate accounts investors. The San Mateo, California-based asset management company indulges in global equity, global institutional and municipal fixed income instruments, money funds, alternative investments, and hedge funds.
Franklin Resources, Inc. (NYSE:BEN) is a member of the Dividend Aristocrat list. This list comprises companies that have increased their dividends for the past 25 consecutive years. To be on this list after the COVID-19 pandemic is a significant achievement as most members were forced to either maintain or slash their dividends, resulting in them losing the membership. Franklin Resources, Inc.’s (NYSE:BEN) forward dividend yield stands at 4.2% as of April 17. Furthermore, the payout ratio stands at a conservative level of 30%. The stock is currently trading at a low forward P/E multiple of 7.5x. The high dividend yield and the low forward P/E multiple makes it an attractive stock in Prem Watsa’s portfolio.
At the end of Q4 2021, 29 hedge funds held a stake in Franklin Resources, Inc. (NYSE:BEN), with a cumulative value of over $401 million.
7. Alphabet Inc. (NASDAQ:GOOG)
Prem Watsa’s Fairfax Financial Holdings’ Stake Value: $48,470,000
Percentage of Prem Watsa’s Fairfax Financial Holdings’ 13F Portfolio: 1.55%
Number of Hedge Funds as of December 31: 158
Alphabet Inc. (NASDAQ:GOOG) is a Mountain View, California-based technology conglomerate holding company that is the parent company of Google and various other subsidies. Alphabet Inc.’s CEO, Sundar Pichai, revealed on April 13 that the company intends to invest $9.5 billion across its offices and data centers in the US. The investment is expected to create 12,000 new full-time jobs by the end of 2022.
Alphabet Inc. (NASDAQ:GOOG) became a part of Fairfax Financial Holdings’ portfolio in Q1 2020. Since January 1, 2020, the stock price of Alphabet Inc. (NASDAQ:GOOG) has rocketed over 87% as opposed to the S&P 500 Index rise of 37.4% during the same period. In a report issued to investors on April 13, Thomas Champion at Piper Sandler commented that in the checks, the commentary on Google was ‘most positive’ ahead of its Q1 2022 earnings.
Baron Opportunity Fund discussed its stance on Alphabet Inc. (NASDAQ:GOOG) in its Q4 2021 investor letter. Here’s what the asset management firm said:
“Alphabet Inc. is the parent company of Google, the world’s largest search and online advertising company. It also houses a market-leading cloud business. Shares outperformed in the quarter after Alphabet reported solid results across the board, with overall revenues growing 41%, driven by an outperformance in search and YouTube. The growth in YouTube was especially encouraging given near-term concerns about advertising trends. Overall operating profit also grew an impressive 88%, demonstrating meaningful improvements in cost controls. Management emphasized that AR/VR (artificial and virtual reality) will be an exciting part of the future and they are investing in hardware and tech to support that vision. Long term, we believe Alphabet is exposed to an array of upside optionality across a diverse range of secular growth tailwinds, including digital media consumption, cloud computing, local commerce, gaming, AR/VR, and selfdriving.”
6. Crescent Capital BDC, Inc. (NASDAQ:CCAP)
Prem Watsa’s Fairfax Financial Holdings’ Stake Value: $58,766,000
Percentage of Prem Watsa’s Fairfax Financial Holdings’ 13F Portfolio: 1.88%
Number of Hedge Funds as of December 31: 7
Crescent Capital BDC, Inc. (NASDAQ:CCAP) is a business development corporation that is focused on generating and investing in the debt of private US middle-market entities. The Los Angeles, California-based company is a global credit investment manager with nearly $28 billion in assets under management (AUM). Crescent Capital BDC, Inc. (NASDAQ:CCAP) has offices in New York, London, and Boston and has a headcount of over 175 employees.
Prem Watsa’s Fairfax Financial Holdings has a stake worth over $58 million in Crescent Capital BDC, Inc. (NASDAQ:CCAP) as of Q4 2021. The stake was initiated in Q1 2020 with over 3 million shares.
On March 7, Finian O’Shea at Wells Fargo initiated coverage on Crescent Capital BDC, Inc. (NASDAQ:CCAP) stock with an Overweight rating and a price target of $19.50. Overall, 7 hedge funds reported owning a stake in Crescent Capital BDC, Inc. (NASDAQ:CCAP) at the end of Q4 2021, up from 3 in the preceding quarter.
In addition to Crescent Capital BDC, Inc. (NASDAQ:CCAP), Alibaba Group Holding Limited (NYSE:BABA), BlackBerry Limited (NYSE:BB), Atlas Corp. (NYSE:ATCO) is also among the stocks on Prem Watsa’s watchlist.
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Disclose. None. 10 Best Stocks to Buy According to Billionaire Prem Watsa is originally published on Insider Monkey.
