Could Prem Watsa’s New Bullish Thesis Get Trumped?

Fairfax Financial Holdings Ltd. (TSX:FFH) continues to get hit hard. Could Trump turmoil send Fairfax to new 52-week lows?

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Fairfax Financial Holdings Ltd. (TSX:FFH) has been a difficult stock to own over the past year. The stock tanked over 22% from its September 2016 high thanks to a number of poor investments.

Prem Watsa had a lot of short positions and hedges against a decline in the markets, but he was caught with his pants down when Donald Trump won the election and the Trump rally took off. To the surprise of many, long-time bearish investor Watsa turned bullish and announced that he had eliminated his short positions, which were causing a great deal of pain for Fairfax.

Many defensive investors looking for a bomb shelter against a market crash weren’t fans of Watsa’s sudden change in stance. The stock remained relatively flat for most of 2017, but it looks to be gaining more negative momentum this month.

A big part of Watsa’s new stance is the pro-business agenda put forth by the Trump administration, so the recent talk of the rising threat of Trump’s impeachment has investors wondering what’s going on in Watsa’s mind. The escalating fears of Trump’s pro-business agenda going out the window are surely going to leave another dent in Fairfax’s stock.

Trump agenda in jeopardy. Is Watsa still bullish?

Watsa told a Bay Street crowd that he’s still bullish on the U.S. economy with President Trump at the helm, but he had some words of wisdom for “The Donald.” Watsa stated that Trump should “stop using that Twitter account … and just stay quiet.”

Watsa is obviously a huge fan of Trump’s economic team and the promises to cut corporate tax rates by approximately 20%. Watsa strongly believes that a strong U.S. economy will mean Canada will benefit, even with Trump’s recent criticisms of Canada’s dairy, lumber, and energy sectors.

Watsa went on with his rant by saying that Donald Trump is “incorrigible,” and that “he doesn’t listen to anyone.”

There’s no question that Watsa risks getting caught with his pants down for a second time if the Trump agenda goes out the window. While I don’t think Trump will be impeached, the general public really hit the panic button hard this Wednesday, and I believe it’s quite possible that we may see another round of selling in the weeks ahead if the Trump situation gets uglier.

Personally, I’m with Watsa. I still think the Trump rally has legs, but I believe many Fairfax investors will continue to be disappointed with Watsa’s new bullish tone because Fairfax has been known to be a safe haven in the event of economic downturns.

Fairfax appears to be at a crossroads right now, so I wouldn’t load up on shares if you’re worried about a crash. I’d only recommend buying shares if you believe in Prem Watsa and his new bullish thesis.

Stay smart. Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any stocks mentioned. Tom Gardner owns shares of Twitter. The Motley Fool owns shares of Twitter. Fairfax Financial is a recommendation of Stock Advisor Canada.

More on Investing

potted green plant grows up in arrow shape
Stocks for Beginners

1 Canadian Growth Stock That Could Double Your Money in an Economic Recovery

The market downturn is an opportunity to lock growth during the economic recovery. This stock is a blend of value,…

Read more »

Bank sign on traditional europe building facade
Investing

RRSP Investors: Here’s the Best Canadian Bank Stock for Your Buck

Bank of Montreal (TSX:BMO)(NYSE:BMO) stock is getting far too cheap to ignore after the latest spill in the big Canadian…

Read more »

analyze data
Dividend Stocks

2 Safe Dividend Stocks That Could Help You Fight Inflation

A dependable stream of passive income is one way to help offset rising inflation rates. Here are two top dividend…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Stay Invested in a Recession: Increase Positions in 2 Value Stocks

The suggestion of market analysts is to increase positions in two value stocks if you want to stay invested amid…

Read more »

Diagonal chain made of zeros and ones. Cryptocurrency and mining.
Cryptocurrency

Is This the End for Crypto?

Bitcoin (CRYPTO:ETH) is in the midst of its worst crash in years. Is this the end?

Read more »

Business success with growing, rising charts and businessman in background
Investing

4 Growth Stocks That Could Make You RICH by 2030

Canadians should take advantage of discounted growth stocks like goeasy Ltd. (TSX:GSY) and others in this summer bear market.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Dividend Stocks to Buy as Inflation Surges in Canada

If you're worried about how surging inflation may impact your portfolio, here are three of the best dividend stocks to…

Read more »

You Should Know This
Dividend Stocks

High Inflation: The Good and the Bad for Canadians

Consider tucking away some of your long-term savings in quality dividend stocks like Brookfield Infrastructure in this correction.

Read more »