Shares of Fairfax Financial Holdings (TSX: FFH) have quietly beaten the TSX Index and the S&P 500 so far this year. Year to date, Prem Watsa’s insurance and investment holding company is up just shy of 32%. Zooming out to the longer-term chart, you’ll see that steady appreciation has been going on for a few years now.
Indeed, Fairfax has had an explosive run. While a correction will eventually arrive, I certainly wouldn’t be afraid to be a net buyer on such a dip, given its trajectory.
In a prior piece, I outlined why Fairfax’s smaller size and agility were a primary reason why it was potentially a better bet than Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B), a conglomerate boasting a nearly $1 trillion valuation.
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Time to bet on Canada’s Berkshire Hathaway over the actual Berkshire Hathaway?
That’s not to knock Berkshire’s talented managers, though. Warren Buffett and his team are among the best in the business, if not the absolute best. It’s just that Berkshire has grown to be too big for new investors to come to expect the same magnitude of returns delivered in past decades.
Given Berkshire’s size, I’d argue that BRK.B stock can top the S&P 500 by a slim amount at best. Either way, I think Fairfax’s long-term runway looks way lengthier. And its smaller size seems to be an advantage for management as they scavenge for deals on the Canadian market.
Indeed, Buffett himself previously acknowledged that it would be tougher for Berkshire to keep the pace it had in the distant past. Undoubtedly, an incredibly smart investment of the public stock portfolio may be more of a drop in the bucket than anything that can propel Berkshire shares higher.
Fairfax: More than just a Canadian version of Berkshire
At the end of the day, Berkshire is a massive elephant, whereas Fairfax is still a relatively small (less than $38 billion market cap at the time of writing) firm that can wheel and deal its way to strong risk-adjusted returns.
The big question for investors is if they have faith in Prem Watsa. Back in 2020, when FFH stock sunk to obscene depths, there were doubts as to whether Watsa still had it. More than four years later and such chatter seems to have been put to rest.
Fairfax inks another incredible deal in Sleep Country
This week, Fairfax landed a $1.7 billion deal to acquire Sleep Country Canada Holdings (TSX: ZZZ). That’s a potentially sizeable needle mover for Fairfax as it looks to bring on the leading sleep retailer at what looks to be a discount. The retailer has been so hard-hit that even with the takeover premium, Sleep Country stock still looks like a steal of a deal.
As Fairfax scoops up deep-value options across the mid-cap scene, perhaps investors seeking a younger, growthier Berkshire-esque play should go with Fairfax. Today, the stock is close to new highs. But if I had to guess, the stock will likely be north of $2,000 per share (it’s at $1,500 and change today) in two to three years from now.
I’m a big fan of the Sleep Country acquisition and think it’s another gem of a company brought aboard the exceptional Fairfax portfolio. In five years from now, I expect Fairfax to be an even bigger force, perhaps with more impressive acquisitions brought aboard.
