Beyond Buffett-Disciple Watsa’s RIMM Holding: 14 Value Names, Some With Big Dividend Yields
Buffett has legions of imitators among investors. Watsa deserves a few. Aside from the fact that both men oversee a large insurance company investment portfolio, the resemblance rests on their image as patient value investors who place their chips with companies selling at low prices relative to their intrinsic business value.
Watsa, 62, a native of India who founded Toronto-based Fairfax Financial Holdings, is clearly a Buffett disciple. He regularly attends Buffett’s annual shareholder meetings. As of March 31, Fairfax owned more than $22 million of A and B shares of Buffett’s Berkshire Hathaway (BRK.A) (BRK.B). In the last five years, Fairfax generated average equity returns of 8.7%, compared to a loss of 0.2% for the S&P500 index.
Given that the Watsa fan club is much smaller than Buffett’s, investors may find bargains by assembling a Watsa addendum to the Buffett list.
Three tenets of the value gospel can be found in most, though not all, of Fairfax’s stock holdings: opportunity, yield and safety. The opportunity stocks, including Research in Motion, are trading at significant discounts to their tangible book value per share – a metric loved by value investors that suggests the stock is cheaper than its break-up value of a company.
Research in Motion sells at 38% discount to tangible book value, as seen in this stock chart.
Another Fairfax stock, Citigroup (C), sells at a 47% discount to tangible book.
Among smaller cap names, Watsa likes two Chinese stocks selling at discounts to tangible book value: electronics maker Nam Tai Electronics (NTE), at a 13% discount, and insurance broker CNinsure (CISG), at a 33% discount.
The “safe” stocks in the Fairfax portfolio include four names also held by Berkshire Hathaway: Wells Fargo (WFC), Wal-Mart Stores (WMT), U.S. Bancorp (USB) and Johnson & Johnson (JNJ). In addition to these giant dividend payers, Watsa likes insurer Baldwin & Lyons (BWINB), with a 4.4% dividend yield; Canadian communications giant BCE (BCE), with a 5.10% dividend yield; and New York Community Bank (NYB), with a 7.90% dividend yield.
Outside the box of conservative value investing, Watsa has made several bets. Last year, he along with megabuck investor Wilbur Ross acquired a major stake in the Bank of Ireland (IRE). He’s also anticipating a revival of homebuilding, with stakes in building materials maker USG (USG), which is also a Buffett holding, and flooring maker Mohawk Industries (MHK).