Shares of Fairfax Financial Holdings (TSX:FFH) have been going sideways for much of the summer, seemingly digesting the profound rally that preceded the consolidation. Indeed, it’s far better for shareholders to experience a “sideways correction” than one that entails a steep drawdown. And while Fairfax shares have been slipping quite a bit, experiencing a dip of around 6-7% back in late summer, there’s no traditional correction just yet.
Though Fairfax stock is overdue for another dip, investors might wish to put a half position to work today, especially considering how cheap shares are and the potential boost of lower interest rates. Indeed, the Bank of Canada delivered another rate cut, and it’s one that could spark another leg higher for those impressive shares of Fairfax Financial.
Time to bet on the great Fairfax CEO Prem Watsa, a man known as the Warren Buffett of Canada?
I’m not sure how Prem Watsa got the “Buffett of Canada” nickname, but after leading FFH stock to 540% returns in five years, I think it’s clear that Fairfax might be the next big thing after Buffett retires as CEO from the legendary Berkshire Hathaway (NYSE:BRK.B) at the end of this year. Indeed, it will be a historic moment for sure, but one that could cause investors to pursue other conglomerates.
When it comes to Fairfax, I think it’s a great option, especially considering Watsa is probably one of the best big-name investors aside from Buffett. And, as I’ve remarked in my prior pieces covering Fairfax Financial, the company has a very modest market cap (currently just shy of $55 billion). That means investments and acquisitions made by Watsa and company will have more of an impact than if it were Berkshire’s size (a market cap in the ballpark of $1 trillion).
Perhaps it’s Fairfax’s (small) size and strength alone that make FFH stock one of the best insurance and investment holding companies, not only in Canada, but in the world. Of course, the incredible management team (good underwriting and smart investments) makes FFH stock worth paying a fat premium for, one that the stock currently lacks.
Prem Watsa has made a slew of sweet Canadian deals over the years
Watsa has been scooping up some fantastic Canadian brands on the cheap in recent years, from The Keg to Sleep Country. As rates fall, Watsa might have more financial firepower to make even bigger moves. Of course, he won’t make a deal just because his firm has ample money to spend.
He’s a value investor, a deep-value investor who will only pounce if there’s an opportunity to snag a hefty discount. As a classic value investor with tremendous momentum behind his firm, I’d argue that it’s time to be patient as new investors ponder the next big move in a multi-bagger name that still has room to the upside.
Either way, Fairfax’s Canadian acquisitions don’t get as much attention, even though they should. In any case, with an 8.95 times trailing price-to-earnings (P/E) multiple, with ample tailwinds on the horizon, I expect the next major move in FFH stock will likely be higher. In any case, FFH stock is a standout performer and one that’s finally worth stashing away in a TFSA for the long haul.
