Canadian Billionaire Prem Watsa’s Top Picks and New Bets for Current Quarter

Billionaire Prem Watsa, one of Canada’s most prominent investors, is the founder, Chairman and Chief Executive Officer of Toronto-based Fairfax Financial Holdings. Mr. Watsa’s holding company primarily engages in property and casualty insurance and reinsurance, as well as investment management. Like billionaire Warren Buffet, the Canadian businessman uses excess capital generated by his company’s insurance operations to invest in high-potential or undervalued equity securities. Earlier this year, Prem Watsa voiced his concerns over the risk that North American and European economies may fall back into recession, as governments’ options to spur economic growth are limited. With China’s economic growth decelerating and near-zero interest rates around the globe, “there is nothing to fall back on now if the U.S. and Europe slip back into recession”, said the Canadian billionaire in the not-so-distant past. Having this in mind, let’s proceed to the discussion of Fairfax’s three largest equity holdings as of the end of March and two new equity bets made during the quarter.

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Leucadia National Corp. (NYSE:LUK) during Q1

– Number of shares owned by Fairfax as of March 31: 300,000

– Value of Fairfax’s holding as of March 31: $4.85 Million

Fairfax Financial Holdings acquired a new stake of 300,000 shares of Leucadia National Corp. (NYSE:LUK) during the first quarter of 2016, which was worth $4.85 million at the end of the quarter. Leucadia National, the parent company of securities and investment banking firm Jefferies, has seen its shares gain 2% since the start of the year. The diversified holding company also owns and operates beef processing, oil and gas E&P, and fixed wireless broadband services businesses. Just recently, Jefferies laid off 17 positions on its equities trading desk after first-quarter revenue from equities trading plunged 99% to $1.75 million. The workforce reduction accounted for a mere 2% of the total number of jobs in the equities division. Meanwhile, the company’s first-quarter revenue from the beef processing business, which accounted for 81% of net revenue, declined to $1.63 billion from $1.86 billion recorded a year ago due to lower selling prices for boxed beef and other related products. First Pacific Advisors LLC, overseen by Robert Rodriguez and Steven Romick, owns 20.90 million shares of Leucadia National Corp. (NYSE:LUK) as of the end of March.

ICICI Bank Ltd (ADR) (NYSE:IBN) during Q1

– Number of shares owned by Fairfax as of March 31: 1.50 Million

– Value of Fairfax’s holding as of March 31: $10.74 Million

The Toronto-based firm added a new stake of 1.50 million American Depositary Shares (ADSs) in ICICI Bank Ltd (ADR) (NYSE:IBN) to its pool of holdings during the first quarter of 2016, which was valued at $10.74 million at the end of the quarter. ICICI Bank represents one of the top private lender in India, so the bank’s stock performance has been weighted by worries about excessive bad loans on its balance sheet. The private-sector bank recently reported net non-performing assets of $2.0 billion as of the end of March, an increase from $1.5 billion recorded at the end of December. ICICI Bank said the increase reflects the impact of the weak global economic environment, the downturn in the commodity cycle and the gradual nature of the Indian economic recovery on borrowers in sectors such as iron and steel, mining, power, rigs and cement. ICICI Bank’s ADSs are 14% in the red year-to-date. Ken Fisher’s Fisher Asset Management has 12.47 million ADSs of ICICI Bank Ltd (ADR) (NYSE:IBN) in its portfolio as of March 31.

Kennedy-Wilson Holdings Inc. (NYSE:KW)

– Number of shares owned by Fairfax as of March 31: 8.95 Million

– Value of Fairfax’s holding as of March 31: $196.02 Million

Billionaire Prem Watsa’s firm held its equity position in Kennedy-Wilson Holdings Inc. (NYSE:KW) unchanged during the January-March period at 8.95 million shares. The third-largest position was worth $196.02 million on March 31 and accounted for 11.8% of the firm’s entire portfolio. Kennedy-Wilson operates as a global real estate investment company that focuses on multifamily and commercial properties located in the Western United States, United Kingdom, Ireland, Spain, Italy and Japan. The company’s total revenues for same-property, multifamily units increased 8.8% year-on-year during the first quarter of the year, while net operating income rose 10.9%. Meanwhile, total revenue for same-property commercial real estate grew by only 1.5% year-over-year and net operating income climbed 1.1%. Shares of Kennedy-Wilson have lost 12% of their value since the beginning of 2016. There were 18 hedge funds from our system with stakes in the real estate investment company at the end of March, which amassed 17% of the company’s shares. Alan S. Parsow’s Elkhorn Partners owns 4.03 million shares of Kennedy-Wilson Holdings Inc. (NYSE:KW) as of the end of the first quarter.

International Business Machines Corp. (NYSE:IBM)

– Number of shares owned by Fairfax as of March 31: 1.36 Million

– Value of Fairfax’s holding as of March 31: $206.35 Million

There were 1.36 million shares of International Business Machines Corp. (NYSE:IBM) in Fairfax’s pool of public equity investments at the end of March, which were valued at $206.35 million. The IBM position, which did not undergo any adjustments in the first quarter, made up 12.4% of Fairfax’s portfolio. Just recently, analysts at Wells Fargo raised the price target on the iconic tech company to $150 from $135 and reiterated their ‘Market Perform’ rating on the company, after IBM allegedly started to clandestinely lay off thousands of employees amid a transition to the cloud. Wells Fargo analysts believe that the software and service company is “moving in the right direction” by reducing costs and channeling massive amounts of capital into the strategic shift from software and services to cloud computing. Although IBM’s headcount is said to be below 378,000 jobs at the moment versus a number of 434,000 in 2011, the company says there are 20,000 positions to be filled. IBM shares are 7% in the green for the year. Warren Buffett’s Berkshire Hathaway had 81.23 million shares of International Business Machines Corp. (NYSE:IBM) in its portfolio at the end of March.

BlackBerry Ltd (NASDAQ:BBRY)

– Number of shares owned by Fairfax as of March 31: 46.72 Million

– Value of Fairfax’s holding as of March 31: $378.77 Million

BlackBerry Ltd (NASDAQ:BBRY) was the largest equity holding within Mr. Watsa’s portfolio at the end of March, accounting for 22.8% of his firm’s portfolio. The 46.72 million-share position was valued at $378.77 million at the end of the March quarter. The Toronto-based firm initially acquired a stake in BlackBerry during the third quarter of 2010, but the Canadian smartphone maker has lost a great deal of value in the past several years. Precisely, BlackBerry has seen its market value plunge 82% in the past five years. Blackberry shares are not doing great this year either, as the stock is down 25% year-to-date. The Canadian handset giant was exceptional at making phones and dominated the market before Apple Inc. (NASDAQ:AAPL) released the iPhone. Although BlackBerry has been refocusing its business on the Enterprise Solutions and Services space, the company continues to be present in the smartphone and devices market and plans to release new smartphones by February next year. Jim Simons’ Renaissance Technologies LLC owned a 14.77 million-share position in BlackBerry Ltd (NASDAQ:BBRY) at the end of the first quarter.

Disclosure: None