Each quarter, hedge funds, such as Prem Watsa’s Fairfax Financial Holdings, file 13F forms with the SEC. These 13F forms disclose many of the positions held in the funds’ equity portfolio during the quarter. Prem Watsa is one of the managers we track at Insider Monkey, and he’s been described as ‘the Warren Buffett of Canada.’ His fund has returned around 100% since 2007.
We will now take a quick look at the five largest equity holdings disclosed in the fund’s first quarter 13F because retail investors can benefit from watching hedge fund sentiment; discover the details of this strategy.
BlackBerry
The largest equity holding in the Fairfax equity portfolio, according to the 13F, is in mobile telecommunications “comeback kid” Research In Motion Ltd (NASDAQ:BBRY) BlackBerry. According to the 13F, as of March 31, the fund held 51,854,700 shares worth over $749 million in Research In Motion Ltd (NASDAQ:BBRY) BlackBerry, comprising 27.96% of the fund’s total filing.
The Research In Motion Ltd (NASDAQ:BBRY) Blackberry maker is very much a laggard in the mobile telecommunications space, but some analysts believe a successful launch of the BlackBerry Z10 and Q10 smartphones may reverse the company’s fortunes; it reported sales of 1 million Z10s in March 2013, and the company also revealed a profit of $94 million on revenues of $2.7 billion in its first in three quarters of the current fiscal year. This represents a strong contrast from a loss just one year earlier, and has given Watsa reason to celebrate in 2013 thus far.
The best of the rest
The fund’s next largest holding is in pharmaceutical giant Johnson & Johnson (NYSE:JNJ), with 5,941,600 shares worth over $484 million as of March 31, 2013, comprising over 18% of the fund’s total equity portfolio. Johnson & Johnson (NYSE:JNJ) has been long considered a genuinely blue-chip stock, owning many leading brands including Listerine, Splenda and Sudafed; a strong balance sheet and a 50-year history of raising dividends are icing on the proverbial cake. Price action has also been impressive, with company starting the year near $70 to trade at $86.84 as of the time of this writing.
Watsa’s next holding is also unchanged from the prior quarter, a stake of 24,776,519 shares worth over $400 million in paper and lumber company Resolute Forest Products Inc (NYSE:RFP), about 15% of the fund’s total reported equity portfolio. Fairfax now holds nearly 30% of Resolute Forest Products Inc (NYSE:RFP)’s outstanding shares, and the fund’s bullishness may be due to the company’s strong fundamentals; it trades at a mere 0.4 times book, compared with an industry average of 1.4. The company’s forward PE is also near 12.20, indicating clear value here.
Next up is telecommunications company Level 3 Communications, Inc. (NYSE:LVLT), with the fund holding about 12.9 million shares worth approximately $262 million, close to 10% of the fund’s total reported equity portfolio. Watsa’s position may be a vote of confidence in the newly appointed CEO Jeffrey Storey, who has previously turned around another troubled telecom Williams Communications Group, which emerged from Chapter 11 to proceed to a successful acquisition by conglomerate Leucadia National Corp. (NYSE:LUK) in 2003. Another factor may be the possible pending optical networking deal with Infinera Corp. (NASDAQ:INFN) or Ciena Corporation (NASDAQ:CIEN).
Rounding out the five is SandRidge Energy Inc. (NYSE:SD), with the fund holding a stake of over 32 million shares worth about $171 million as of March 31, 2013. Watsa’s move may be a vote of confidence in the oil fracking industry, of which SandRidge Energy Inc. (NYSE:SD) is a clear leader heading into the next half-decade, if not longer. Prospective investors should note the uncertain future of current CEO Tom Ward, who some activist shareholders are lobbying to remove, but on the whole, SandRidge’s aggressive development plan should pay off in the long run, as natural gas prices rebound.
Final thoughts
Prem Watsa is a quintessential buy-and-hold value investor, with no changes to his five largest holdings during the latest quarter. For those looking for a Buffett-lite investor to follow, his top stock picks—Research In Motion Ltd (NASDAQ:BBRY) BlackBerry, Johnson & Johnson (NYSE:JNJ), Resolute Forest, Level 3 Communications, Inc. (NYSE:LVLT), and SandRidge—may be worth adding to your watchlist. Continue preparing for 13F-filing season here.
Disclosure: none
