Financial stocks continue to underperform as a whole. Yet not in the case of Fairfax Financial Holdings (TSX:FFH). The financial stock climbed 8% in February, and continues to remain at elevated prices.
In fact, this climb is only the most recent one. Shares of Fairfax stock are currently up about 58% in the last year alone! So what’s going on with Fairfax stock, and should investors buy in, too?
Profit helps with losses
Fairfax stock recently reported its full-year and fourth-quarter earnings. The investment management and insurance firm announced yet another strong quarter and indeed year that beat out analyst estimates. In fact, the fourth-quarter profit helps offset full-year earnings that dropped because of rising interest rates.
The fourth quarter brought in profit at US$1.9 billion, coming in at US$78.33 per share. What’s more, those earnings are expected to climb even higher, with the company selling its pet insurance business to a German private investment company. This will bring in US$1.2 billion for the insurance and asset manager.
Despite the positive news, the company continues to expect to be in a difficult market for 2023. Fairfax increased its prices by about 7% over the last year. It could continue to face difficult conditions as consumers look for the best option for the cheapest price.
That being said, because of the increase, the company has managed to bring in a profit despite the losses from investments. So, even as insurance claims arise from some of the largest disasters including Hurricane Ian, the company remains in strong financial shape.
Due to continue?
The question is, how much longer can this continue? While premiums increased by about 15.8% in the last year, profits fell drastically in 2022 to US$1.2 billion from US$3.4 billion in 2021. So while we’re seeing an improvement, it’s certainly still a ways away from 2021 levels.
Management remains confident that the future looks bright for Fairfax stock, with its losses reversing in the short term at least. As it heads into 2023 on a strong financial footing, investors should indeed continue to see shares rise further as the company proves it can withstand the short-term losses.
In fact, management must be quite confident considering it repurchased US$348 million of shares in 2022. That’s in addition to the US$1.2 billion bought back in 2021. And even with shares up the way they are in 2023, it looks like more buybacks are in the future as well.
Despite this 60% growth, Fairfax stock still trades in value territory. The company trades at 15.8 times earnings as of writing, as well as 1.1 times book value. This puts it well within value territory right now. It also has a 1.13% dividend yield to consider.
Then, there’s the long-term growth as well. Fairfax stock is up 193% in the last decade for a compound annual growth rate (CAGR) of 11.3%. It’s important to note, however, that much of this came over the last few years, with the company expanding and seeing investments rise.
Even still, looking back further you’ll see Fairfax stock is up 1,607% in the last two decades. That alone is a CAGR of 15.2%. So clearly, a long-term hold won’t steer you wrong in terms of this stock. And with shares only growing in this poor market, it’s a great time to ride the wave.