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Value Investor Francis Chou’s Top Picks Include…Berkshire Hathaway Inc. (BRK.B)

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Francis Chou, of Chou Associates Management, was recognized by Morningstar with the Fund Manager of the Decade award in 2004. We track his quarterly 13F filings alongside those of hundreds of hedge funds and other notable investors as part of our work developing investment strategies (for example, we’ve found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). In addition, while we don’t recommend blindly imitating any manager’s picks, we like to see how individual filers are playing the markets by going through their top picks; this also allows investors to potentially identify ideas for further research. Read on for our thoughts on Chou’s five largest holdings as of the end of March or see the full list of his stock picks.

Chou is a modest guy: his top pick was Berkshire Hathaway Inc. (NYSE:BRK.B). Many value investors think that their own talent in picking individual stocks is good enough to avoid buying shares of Warren Buffett’s holding company (or, like us, they are concerned that Buffett’s successors might not prove as adept at managing the giant amount of assets Berkshire has). At current market prices Berkshire Hathaway Inc. (NYSE:BRK.B) is valued at a significant premium to the book value of its assets, with a P/B ratio of 1.4. Find Buffett’s favorite stocks.

Francis Chou Chou Associates ManagementWhen it comes to “the Warren Buffett of Canada”, Prem Watsa, however, Chou apparently prefers to order a la carte: his second largest holding by market value was Watsa favorite Resolute Forest Products Inc (NYSE:RFP), a $1.3 billion market cap company providing newsprint and other paper products. Due to a struggling industry, earnings per share have not been particularly high recently though Wall Street analysts expect business to improve over the next year and a half with the result being a forward P/E of 12. According to the most recent data, 16% of the float is held short.

The fund owned 2.5 million shares of Dell Inc. (NASDAQ:DELL) at the end of the first quarter of 2013. Dell currently trades at $13.42 per share, with the company apparently moving towards accepting founder Michael Dell’s offer of $13.65 (working with private equity investors such as Silver Lake) to take the company private. Billionaire activist Carl Icahn has offered more per share, but concerns regarding the reliability of his financing seem to be preventing him from winning the deal. That makes for a 1.7% absolute unlevered return assuming the deal closes at $13.65.

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