If you’re looking for a Canadian stock that’s been quietly crushing the market, Fairfax Financial (TSX: FFH) deserves your attention. Over the past year, shares are up more than 50%, massively outpacing the TSX and most insurers in North America. And now, after a monster second quarter, investors are wondering if this might just be the smartest investment on the TSX right now.
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Into earnings
Fairfax reported a whopping $1.44 billion in net income in the second quarter alone. That’s a jump of over 57% from the same quarter last year, driven by strong underwriting, booming investment returns, and consistent premium growth. Earnings per diluted share came in at $61.61, with book value per share rising 10.8% year to date, even after accounting for its sizeable $15 dividend paid earlier this year, which has since increased. Fairfax’s ability to compound book value over time is a big part of its long-term appeal, and it’s clearly still working.
The engine behind these results is the Canadian stock’s core property and casualty insurance business. This segment delivered a combined ratio of 93.3% and an underwriting profit of $426.9 million, up from last year’s already solid showing. Net premiums written grew by nearly 5%, showing there’s still momentum in the business despite industry headwinds. And with interest and dividend income rising to $579.7 million in the quarter, Fairfax also benefits from higher rates and smart capital allocation.
Considerations
But what really stood out in the second quarter was investment performance. Fairfax posted nearly $1 billion in net investment gains, most of it coming from equity positions and strategic holdings like Eurobank and Poseidon. These are long-term bets that are starting to pay off in a big way. Fairfax doesn’t trade like a flashy growth stock, but its results this year are anything but boring.
Still, this isn’t a risk-free story. Fairfax is complex, with exposure to global markets, reinsurance, and some non-insurance businesses. The Canadian stock also relies heavily on its investment performance, which can be volatile quarter to quarter. That means one bad stretch in the markets could weigh heavily on results, especially after such a strong first half.
Looking ahead
Yet Fairfax has proven over decades that it knows how to navigate through uncertainty. The Canadian stock has $3 billion in holding company cash, more than $10 billion in insurance subsidiary cash, and a well-diversified investment portfolio. Even with higher debt issuance this year, its capital position remains strong, and management continues to buy back shares and make disciplined acquisitions.
There’s a reason why Prem Watsa, often called the Warren Buffett of Canada, has stuck to this blueprint for so long. It works. And with the business firing on all cylinders, investment gains accelerating, it’s hard to ignore Fairfax right now.
Bottom line
So, is this the smartest investment you can make today? It just might be. The mix of insurance discipline, deep value investing, and capital strength has made Fairfax one of the most impressive and underrated success stories on the TSX. And after this kind of quarter, with more upside catalysts in play, there’s a strong case that the best could still be ahead.
