Warren Buffett may be retiring from Berkshire Hathaway (NYSE: BRK.B) at the end of the year, but the man some refer to as the Canadian Warren Buffett, Fairfax Financial (TSX: FFH) CEO Prem Watsa, is still just getting started.
With shares of FFH gaining close to 500% in the last five years, the Berkshire-like insurance and investment holding company has gained some serious attention as of late.
And while it’s going to be very difficult to score such multi-bagger gains moving forward, I do think that investors looking for results should stick with Watsa and company.
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Prem Watsa: He’s earned the “Canadian Warren Buffett” nickname
Indeed, Prem Watsa’s leadership is worth a fat premium. Personally, I think the stock lacks such a premium. And with a still relatively small market cap of around $55 billion, Fairfax can still make some needle-moving deals, something that gets a bit tougher with size. Indeed, Berkshire isn’t just a large company; it’s a colossal conglomerate with a $1 trillion market cap.
Sure, there’s a record amount of cash on the balance sheet, but, at the end of the day, every investment that’s made isn’t nearly as effective anymore.
And with Buffett poised for retirement, Berkshire shareholders may be wondering if it’s worth it to stick around or if there’s another Berkshire-like company out there with a seasoned top boss that knows how to spot value in all sorts of market conditions.
With Berkshire in a correction while FFH stock is at a new all-time high, perhaps it’s not the best time to rotate funds from the former into the latter. That said, I still see value in both stocks as we head into the month of August. Even after the blistering five-year run, Fairfax trades at 10.4 times trailing price-to-earnings (P/E) — not exactly a multiple that suggests overvaluation.
In fact, Fairfax stock is far cheaper than your average TSX-traded name. In prior pieces, I praised Fairfax as a stock that has found a way to get cheaper as it climbs. Indeed, in a market environment where many other stocks rely on multiple expansion, Fairfax has actually improved its fundamentals and earnings growth profile.
Fairfax is off to higher highs
And while Fairfax’s epic run could get choppier moving forward, I continue to view Watsa’s firm as a cheaper, less-choppy (0.83 beta at the time of this writing), and growthier bet than the rest of the market. As Watsa continues making smart investments while managing through a better climate for financial performance, I wouldn’t be so quick to ditch the stock, even if the share price (just shy of $2,500 per share) is getting a tad out of hand.
With impressive underwriting profits and some very smart M&A made in recent years, I think Fairfax has the means to keep rewarding shareholders for their patience.
Add the robust balance sheet, which keeps doors open to potential acquisition targets, into the equation, and Canada’s Warren Buffett seems primed for even more performance. Perhaps the most exciting part of Fairfax is the possibilities as Watsa and company explore opportunistic investments in markets well beyond North America (think India).
Can Fairfax keep topping Berkshire for years to come? It’s hard to say as Berkshire gets a new CEO (a Canadian man named Greg Abel), but I think you can’t go wrong with owning both.
