Prem Watsa’s Fairfax Financial Doubles Stake in RIMM

Fairfax Financial Holdings Ltd (FRFHF), the insurance firm run by Prem Watsa, has taken on a 5.12% stake in Blackberry maker Research in Motion (RIMM) according to a filing with the SEC dated January 26. The news comes less than a week after Watsa joined RIMM’s board.

The SEC filing lists that Prem Watsa owns 26,848,500 shares or shared voting. As of the close of trading on January 27, Watsa’s stake in the company was worth over $450 million. RIMM closed trading at $16.80 a share. Watsa had owned just under 11.8 million shares in RIMM at the end of the third quarter. Fairfax bought 6.5 million shares on January 25 and another 7.6 million shares on January 26. RIMM share prices on January 25 ranged from $14.93 to $16.43 a share, while trading January 26 was slightly less volatile, producing a price range of $16.09 to $16.77.

Prem Watsa

RIMM fell 75.40% in 2011. It opened 2011 at $58.94 but was trading at just $14.50 a share on December 30th. The difference is stark but RIMM is arguably priced to buy. Some analysts recommend the stock as a hold, estimating the stock will perform with the market. It carries an analyst recommendation of 3.2 on a scale in which 1.0 means “strong buy” and 5.0 means “sell,” but the range of analyst estimates on this stock is huge. One-year target estimates for the company range from $8, or less than half RIMM’s current price, to $40, which is more than double its price. In any case, the stock is priced well, at just 5.73 times its forward earnings and, right now, is trading at less than book value with free cash flow. Yet, the company still has a growing subscriber base and increases in revenue.

The Indian-born Watsa has been called the “Warren Buffett of Canada” because he has been following the footsteps of Warren Buffett and investing in Buffett’s favorite stocks such as Wells Fargo & Co. (WFC), Johnson & Johnson (JNJ), Kraft Foods Inc. (KFT) and US Bancorp (USB). He also maintains investment in Buffett’s Berkshire Hathaway (BRK.A) (BRK.B). But, Watsa is more than just a value investor. He is also a good one. His Fairfax Financial has increased its book value by almost 25% annually since 1985. It also boasts returns close to 100% since 2007 vs. a loss of 20% for the S&P 500 during the same period. Watsa made $2.7 billion in 2008 by buying up credit-default swaps on lenders. At the end of the third quarter Watsa’s Fairfax Financial had large positions in Johnson&Johnson, Dell Inc (DELL), Level 3 (LVLT), Abitibibowater (ABH), and Frontier Communications (FTR). Prem Watsa is a long-term investor and usually don’t make a lot of trades from one quarter to the next. During the third quarter, he didn’t make any changes in 36 of the 44 positions Fairfax had.

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