In this article we will take a look at some of the best stocks to buy now based on Prem Watsa’s Q1 portfolio. You can skip our detailed analysis of Watsa’s history, investment philosophy, and hedge fund performance, and go directly to 5 Best Stocks to Buy in 2021 According to Billionaire Prem Watsa.
Prem Watsa is an Indian-Canadian billionaire businessman and the founder, chairman, and CEO of Fairfax Financial Holdings. Commonly called “Canadian Warren Buffett,” Watsa has been acquiring insurance companies and structuring them like his successful idol Warren Buffett. Watsa has a large following and offers great insights into becoming a successful investor. Fairfax has stakes in companies like BlackBerry Limited (NYSE: BB) and General Electric Company (NYSE: GE) and owns property and casualty insurance and reinsurance interests worldwide.
Fairfax has 46.72 million shares of BlackBerry Limited (NYSE: BB) representing 13.69% of its portfolio. BlackBerry Limited (NYSE: BB) shares are up 88% over the last 12 months. BlackBerry Limited (NYSE: BB) was formally a global mobile tech giant but failed to keep up with the growing competition from other tech companies like Apple Inc. (NASDAQ: AAPL). Watsa started raising his stake in BlackBerry between 2010 and 2011. BlackBerry Limited (NYSE: BB) has successfully transitioned itself into a software company.
Fairfax has seen its asset portfolio grow in the last three years from $64.4 billion in December 2018 to $74.1 billion in December 2020. The fund has seen shareholder equity grow to $11.8 billion, $13.0 billion, and $12.5 billion in 2018, 2019, and 2020, respectively.
In its latest earnings report, Fairfax announced $806.0 million or $28.91 per diluted share in net earnings in Q1 2021. This is an increase from a net loss of $1.3 billion or $47.38 per diluted share reported in Q1 2020. In Q1 2021, the company’s share had a book value of $497.23 compared to $478.33 at the end of 2020.
Fairfax reported GAAP EPS of $28.91 and beat analyst expectations by $4.66 in Q1 2021. The company also reported a whopping 89.9% increase in revenue in Q1 2021 and beat projections by $210 million.
Watsa recently increased his holding in Pfizer Inc. (NYSE: PFE) by 34% to 400,900 shares. Recently Pfizer Inc. (NYSE: PFE) and BioNTech SE (NASDAQ: BNTX) COVID-19 vaccine were approved in the United Arab Emirates for emergency use in children aged 12-15. The U.S. Food and Drug Administration has also approved the vaccine for use in children as young as 12.
Pfizer Inc. (NYSE: PFE) reported $14.6 billion in revenue for Q1 2021, representing a 42% growth. The pharmaceutical company has raised its revenue projections for 2021 to between $70.5 billion to $72.5 billion.
Watsa also owns 172,900 shares in Merck & Co., Inc. (NYSE: MRK) after raising his stake in the company by 41%. The FDA recently approved Merck’s sBLA used as a first-line treatment for gastric cancer. sBLA is used in combination with chemotherapy and Herceptin (trastuzumab) to treat advanced gastroesophageal junction adenocarcinoma.
In its Q1 2020 financial results, Merck & Co., Inc. (NYSE: MRK) reported a 5% increase in revenue to $12.5 billion. The company reported GAAP loss per share of $0.83, attributed to the acquisitions and Intangible asset impairments. Sales increased by 2% to $48 billion. Terence Flynn from Goldman Sachs has upgraded the stock to “Conviction Buy” from “Buy.”
Fairfax also owns 73,400 shares of pharmaceutical giant Johnson & Johnson (NYSE: JNJ), which is among the few forerunners searching for the vaccine against COVID-19. Johnson & Johnson (NYSE: JNJ) recently announced better-than-expected financial results for Q1 2021, with sales rising by 8% to $22.3 billion. In particular, sales from its pharmaceutical unit went up by 9.6% to $12.2 billion. The Johnson & Johnson (NYSE: JNJ) stock is also safe, with a dividend payout ratio of about 70%.
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Here are the best stocks to buy in 2021 according to billionaire Prem Watsa:
18. RealPage Inc., Acquired by Thoma Bravo Advantage (NYSE: TBA)
Watsa’s Stake Value: $698,000
Percentage of Prem Watsa’s 13F Portfolio: 0.02%
No. of Hedge Fund Holders: 48
RealPage, Inc. (NASDAQ: RP) is a U.S multinational corporation that offers property management software for commercial, multifamily, single-family, and vacation rental housing industries. Fairfax purchased 8,000 shares of ReaPage in Q1 2021.
Whitesky has partnered with RealPage to use its network, data center operations, and resident experience centers to allow operational efficiency, fast deployment, and enhanced customer experience. WhiteSky Communications is an Alabama-based ISP/MSO established in 2005 and which specializes in offering video, VOIP, and internet services for MDU housing developments and other businesses across the world.
RealPage Inc. (NASDAQ: RP)’s GAAP total revenue for Q4 2020 increased by 17% to $298.1 million compared to what was reported in Q4 2019. During the quarter, net income was $13.1 million, or $0.12 per diluted share.
Carillon Eagle Small Cap Growth Fund, in its Q4 2020 investor letter, mentioned RealPage, Inc. (NASDAQ: RP). Here is what Carillon Eagle Small Cap Growth Fund has to say about RealPage, Inc. in its letter:
“RealPage Inc. (NASDAQ: RP) provides software and data analytics products to the multi-family real estate industry. After previously dealing with general COVID related concerns surrounding large multifamily properties, the company entered into an agreement in the quarter to be acquired by private equity firm Thoma Bravo for a sizable premium, sending shares higher. The terms of the agreement also grant RealPage permission to seek a higher bidder within a 45-day “go-shop” period.”
17. CRH Medical Corporation (NYSE: CRHM)
Watsa’s Stake Value: $1,067,000
Percentage of Prem Watsa’s 13F Portfolio: 0.03%
No. of Hedge Fund Holders: 5
CRH Medical Corporation (NYSE: CRHM) is a healthcare company that distributes innovative to physicians. The company offers clinical, operational, marketing support to partner physicians. Fairfax added 270,000 shares of CRH Medical in Q1 2021. The stock ranks 17th in the list of best stocks to buy in 2021 according to billionaire Prem Watsa.
CRH Medical Corporation (NYSE: CRHM)’s shareholders have approved the selloff of CRH Medical to a subsidiary of WELL Health Technologies Corp. Under the agreement, CRH shareholders will be paid a cash payment at the rate of $4.00 per share.
The company reported a 21% increase in revenue to $36.8 million in Q4 2020. There was a 24% increase in revenue from anesthesia services to $34.1 million in Q4 2020 compared to a similar period in 2019.
In Q4 2020, CRH Medical Corporation (NYSE: CRHM) reported 108,681 cases of anesthesia patients, representing a 15% increase from the same period in 2019. Adjusted operating EBITDA in Q4 2020 amounted to $16.1 million with a 44% adjusted operating EBITDA margin. The company’s adjusted operating shareholder EBITDA increased by 27% in Q4 2020 to $11.2 million compared to Q4 2019.
In April, JPMorgan rated the stock as “Neutral” and has set a price target of $25.75.
“During the quarter I sold client positions in long-time holding CRH Medical following the announcement that they lost their largest service contract with United Digestive, representing over 20% of Adjusted shareholder EBITDA. While the effect of the contract loss won’t show up in the company’s financials until 2022, this news, combined with the already rough 2020 due to COVID forced me to re-evaluate the risk/reward and potential upside of the business.
Having become familiar with the business over the years and watching management grow the company through accretive M&A, I was comfortable managing the holding (and even adding to it) during the pandemic. However the loss of a large service contract is not as ‘solvable’ an issue as people eventually returning to their GI doc post-COVID, which opens the business up to continued decreases in revenues and profitability. CRH has some nasty reverse operating leverage given small declines in revenues, and this dynamic may be likely to continue into the foreseeable future. While some excess liquidity including a PPP loan helped get them through the year, I don’t believe I’d be willing to sacrifice another year of poor results when there are much better investments available to us.
While I’ve been burned by customer concentration before, I tried to zoom out and assess the situation rationally which still brought me to the same conclusion. I would find it very difficult for CRHM to return to their highly free cash flow generative state without replacing that contract very soon, and combined with potential reimbursement rate uncertainty and potential GI practice consolidation or a shift in postCOVID business practices, my view of the future became a lot less clear. I will continue to follow their progress and revisit the opportunity should it become attractive again.”
16. Loral Space & Communications Inc. (NASDAQ: LORL)
Watsa’s Stake Value: $2,486,000
Percentage of Prem Watsa’s 13F Portfolio: 0.08%
No. of Hedge Fund Holders: 17
Loral Space & Communications Inc. (NASDAQ: LORL) is a satellite communications company that offers satellite-based communications services to corporate, broadcast, and government customers globally. Fairfax trimmed its stake in the stock by 35% to 66,000 shares in the first quarter of 2021. Still, the stock has made it to the list of best stocks to buy in 2021 according to billionaire Prem Watsa.
The company has announced a definitive agreement with Telesat Canada (Telesat) and Public Sector Pension Investment Board (PSP Investments) to combine Loral Space & Communications Inc. (NASDAQ: LORL) and Telesat into a new Canadian public company.
15. U.S. Silica Holdings, Inc. (NYSE: SLCA)
Watsa’s Stake Value: $1,598,000
Percentage of Prem Watsa’s 13F Portfolio: 0.05%
No. of Hedge Fund Holders: 17
U.S. Silica Holdings, Inc. (NYSE: SLCA) produces and sells commercial silica in the United States. The company announced a net loss of $20.8 million in Q4 2020. In Q1 2021, revenues amounted to $234.4 million. Fairfax trimmed its stake in the stock by 63% to 130,000 shares in the first quarter of 2021. The stock ranks 15th in the list of best stocks to buy in 2021 according to billionaire Prem Watsa.
U.S. Silica Holdings, Inc. (NYSE: SLCA) recently announced that its Industrial and Specialty Products unit would increase prices for its non-contracted diatomaceous silica, cellulose, perlite, earth, and clay products used in paints, filtration, chemicals, elastomers, coatings, and building products.
Samantha Hoh from Evercore ISI recently upgraded the stock from “In line” to “Outperform” while Citi’s Scott Gruber upgraded the stock to “Neutral” from “Sell.”
14. IMAX Corporation (NYSE: IMAX)
Watsa’s Stake Value: $2,512,000
Percentage of Prem Watsa’s 13F Portfolio: 0.08%
No. of Hedge Fund Holders: 17
IMAX Corporation (NYSE: IMAX) is a global entertainment company that conducts its operations through a network of subsidiaries. In Q1 2021, Fairfax upped its stake in the stock by 39% to 125,000 shares and the company has made it to the list of best stocks to buy in 2021 according to billionaire Prem Watsa.
In April, Alicia Reese from Wedbush upgraded the stock to “Outperform” from “Neutral” and set a price target of $26.
13. Argan, Inc. (NYSE: AGX)
Watsa’s Stake Value: $3,201,000
Percentage of Prem Watsa’s 13F Portfolio: 0.11%
No. of Hedge Fund Holders: 14
Argan, Inc. (NYSE: AGX) offers procurement, engineering, commissioning, construction, and consulting services to the power generation and renewable energy industries. Like BlackBerry Limited (NYSE: BB), General Electric Company (NYSE: GE) and Pfizer Inc. (NYSE: PFE) Argan is one of the best stocks in Watsa’s portfolio. Fairfax upped its stake in the stock by 43% to 60,000 shares in the first quarter of 2021.
The company reported a 72% increase to $117.2 million in Q1 2021 compared to $68.0 million reported in Q4 2020. The company reported an increase in business activities in all its subsidiaries. Gross profits increased 319% to $22.1 million for Q1 2021 from $5.2 million reported in Q1 2020.
CJS Securities has upgraded the stock to “Market Outperform” from “Market Perform” while Lake Street Capital Markets upgraded the stock from “Hold” to “Buy.”
“Argan was a satisfactory investment for Fund shareholders. We became concerned though that parts of the thesis were not playing out, and proactively decided to exit the position and redeploy the proceeds into companies where we had higher conviction.”
12. Brookfield Asset Management Inc. (NYSE: BAM)
Watsa’s Stake Value: $2,225,000
Percentage of Prem Watsa’s 13F Portfolio: 0.07%
No. of Hedge Fund Holders: 38
Brookfield Asset Management Inc. (NYSE: BAM) is a global manager of alternative assets and a leading investor in real estate. Like BlackBerry Limited (NYSE: BB), General Electric Company (NYSE: GE) and Pfizer Inc. (NYSE: PFE) Brookfield is one of the best stocks in Watsa’s portfolio.
Third Avenue Management, in its Real Estate Value Fund Q1 2021 investor letter, mentioned Brookfield Asset Management Inc. (NYSE: BAM). Here is what Third Avenue Management has to say about Brookfield Asset Management Inc. in its letter:
“Brookfield Asset Management Inc. (NYSE: BAM) (a Canada-based alternative asset manager with leading positions in property, infrastructure, renewable energy, private equity, and credit) announcing that it had agreed on terms to acquire the remaining 40% of its publicly-traded real estate subsidiary (Brookfield Property Partners) that it didn’t already own for a mix of cash, stock, and preferred equity. Should the deal close later this year, Brookfield’s management team (which is led by one of the preeminent capital allocators CEO Bruce Flatt) will expand upon its esteemed track record of contrarian investing by increasing its exposure to premier office and retail assets at a time when both property types are out-of-favor. In addition, the company seems likely to enhance its ability to extract value from the properties through active management, non-recourse financings, and densification efforts with the platform fully-controlled and placed alongside some of its other verticals (e.g., Brookfield Residential).”
11. Granite Real Estate Investment Trust (NYSE: GRP-UN)
Watsa’s Stake Value: $1,216,000
Percentage of Prem Watsa’s 13F Portfolio: 0.04%
No. of Hedge Fund Holders: 6
Granite Real Estate Investment Trust (NYSE: GRP-UN) is a Canada-based REIT specializing in acquiring, developing, and managing warehouses, logistics, and industrial properties in North America and Europe. In Q1 2021, Fairfax upped its stake in the stock by 49% to 20,000 shares. The stock ranks 11th in the list of best stocks to buy in 2021 according to billionaire Prem Watsa.
In Q1 2021, the company reported $81.5 million in net operating income compared to $67.9 million in Q1 2020. The $13.6 million increase is attributed to acquisition activities at the start of Q1 2020. Granite Real Estate Investment Trust (NYSE: GRP-UN) has declared a dividend of CAD 0.25 per share in April.
10. Osisko Gold Royalties Ltd (NYSE: OR)
Watsa’s Stake Value: $1,757,000
Percentage of Prem Watsa’s 13F Portfolio: 0.06%
No. of Hedge Fund Holders: 16
Osisko Gold Royalties Ltd (NYSE: OR) deals in precious and other royalties, streams, and offtakes and serves clients in Canada and globally. In the first quarter of 2021, Fairfax upped its stake in the stock by 83% to 160,000 shares. The stock ranks 10th in the list of best stocks to buy in 2021 according to billionaire Prem Watsa.
The company has announced its quarterly results for Q1 2021 with revenue amounting to C$69.36M, which represents a 83.3% increase YoY.
“Osisko Gold Royalties (OR) is the fourth largest precious metals royalty and streaming company. Its cornerstone asset is a gold royalty on the Canadian Malartic mine in Quebec. The firm has a greater percentage of its portfolio in North America than any of its top peers, which reduces political risk. We purchased the shares at just over 10x trailing cash flow and at a discount to NAV based on current metals prices. Our Osisko investment should be a diversified, cash-generative way for us to express our fondness for precious metals in this environment.”
9. Under Armour, Inc. (NYSE: UA)
Watsa’s Stake Value: $2,196,000
Percentage of Prem Watsa’s 13F Portfolio: 0.07%
No. of Hedge Fund Holders: 47
Under Armour, Inc. (NYSE: UA) specializes in the development, marketing, and distribution of branded footwear, performance apparel, and accessories for men, women, and youth and serves the global market. In Q1 2021, Fairfax upped its stake in the stock by 86% to 119,000 shares. The stock ranks 9th in the list of best stocks to buy in 2021 according to billionaire Prem Watsa.
Under Armour, Inc. (NYSE: UA) reported a 35% increase in revenue to $1.3 billion in Q1 2021 compared to the similar period in 2020. During the quarter, net revenue totaled $78 million while adjusted net income amounted to $75 million.
Daniela Nedialkova from Atlantic Equities has upgraded the Under Armour, Inc. (NYSE: UA) to “Neutral” from “Underweight,” while Adrienne Yih from Barclays upgraded the stock to “Overweight” from “Equal Weight.” Barclays has a price target of $34.
“Shares of athletic apparel manufacturer Under Armour, Inc. (Cl A) declined after the company fell short of its revenue targets and reduced forward guidance, suggesting its turnaround plan was not proceeding as planned, and a meaningful improvement in fundamental results would be pushed out beyond management’s initial expectations. Under Armour, Inc. (NYSE: UA) entered into the COVID-19 crisis with weaker fundamental trends and we believe it will have a more difficult time navigating the challenging economic environment relative to its core competitors.”
8. WW International, Inc. (NASDAQ: WW)
Watsa’s Stake Value: $2,502,000
Percentage of Prem Watsa’s 13F Portfolio: 0.08%
No. of Hedge Fund Holders: 32
WW International, Inc. (NASDAQ: WW) that offers weight loss and maintenance, fitness, and mindset services announced its note offering of $500 million in aggregate principal amount, which is expected to mature in 2029 and whose sale is expected to close in April 2021. Watsa’s fund upped its stake by 96% to 80,000 shares in Q1 2021. The company closed Q1 2021 with 5 million subscribers, while revenues amounted to $332 million.
Miller Value Partners, in its Q4 2020 investor letter, said WW International, Inc. (NASDAQ: WW) is a company they continue to monitor during the fourth quarter of 2020. Here is what Miller Value Partners has to say about WW International, Inc. in its letter:
“Another name we’re very excited about is WW (formerly known as Weight Watchers). We’ve followed it for a while. CEO Mindy Grossman, joined in 2017, is excellent. While the company has looked cheap in the past, we think the digital transition has reached an important inflection the market is not reflecting. We expect improving revenue growth and margin expansion and believe the stock can double.”
7. Lumen Technologies, Inc. (NYSE: LUMN)
Watsa’s Stake Value: $19,024,000
Percentage of Prem Watsa’s 13F Portfolio: 0.66%
No. of Hedge Fund Holders: 29
Lumen Technologies, Inc. (NYSE: LUMN) is a U.S-based facilities-based technology and communications company that offers integrated services and solutions under the CenturyLink brand to customers in the U.S and around the world. Like BlackBerry Limited (NYSE: BB), General Electric Company (NYSE: GE) and Pfizer Inc. (NYSE: PFE) Lumen is one of the best stock in Watsa’s portfolio. Fairfax added this stock to its portfolio in the latest quarter by buying 1.43 million shares.
The company reported an income of $475 million in Q1 2021 compared to and a net income of $314 million in Q1 2020. Lumen Technologies, Inc. (NYSE: LUMN) recently won a contract to supply WiFi, unified communications, secure high-speed connectivity, and managed network services to the U.S. Navy Judge Advocate General (JAG).
“Lumen (40%, 3.33%), the global fiber company, was the top contributor. While COVID fallout still weighed on fourth quarter results, the company benefitted from positive business mix improvements. Early in the quarter, Lumen appreciated 38% in a few short days amidst the “Game Stop / Reddit” short cover phenomenon. After this shortterm bounce, Lumen’s stock price appreciated more steadily over the last six weeks of the quarter with improved results. Many of last year’s worst-case fears have not materialized and the outlook is improving for the core business. We continue to believe that the company has multiple ways within its control to both grow and realize value per share, and we have a 13D filed to allow us to discuss these options with the company. Lumen’s board, which includes Southeastern-nominated Chairman Mike Glenn from FedEx and Director Hal Jones from Graham Holdings, is doing good work to realize Lumen’s hidden value and return the business to FCF/share growth. Despite its appreciation, the stock trades at less than half of our appraisal.”
6. H&R Block, Inc. (NYSE: HRB)
Watsa’s Stake Value: $16,813,000
Percentage of Prem Watsa’s 13F Portfolio: 0.58%
No. of Hedge Fund Holders: 23
H&R Block, Inc. (NYSE: HRB) offers do-it-yourself (DIY) tax, assisted income tax return preparation, and virtual tax preparation services in the U.S, Canada, and Australia. Fairfax added this stock to its portfolio in the latest quarter by buying 770,894 shares. The stock ranks 6th in the list of best stocks to buy in 2021 according to billionaire Prem Watsa.
In its recent earnings reports, the company reiterated its revenue and earnings projections for the fiscal year. H&R Block, Inc. (NYSE: HRB)’s revenue for the fiscal third quarter was affected by the delay in the start of the U.S. tax season as well as the late opening of IRS e-file, which led to a 41% drop to $308 million.
H&R Block, Inc. (NYSE: HRB) managed to partially offset the impact of this drop thanks to an increase in small business payments processing as well as payroll volume at Wave. In addition, there was also increased international results and increased fees from Emerald Card transactions.
Kartik Mehta from Northcoast Research upgraded H&R Block, Inc. (NYSE: HRB)’s stock to “Buy” from “Neutral,” and BTIG’s Mark Palmar also upgraded the stock to “Buy” from “Neutral.” H&R Block, Inc. (NYSE: HRB) declared a quarterly dividend of $0.26 per share in March.
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Disclosure: None. Best Stocks to Buy in 2021 According to Billionaire Prem Watsa are originally published on Insider Monkey.