Warren Buffett and Prem Watsa Both Love These Five Stocks

Very few people in the finance world would need an introduction to Warren Buffett, the founder of Berkshire Hathaway. When Buffett shows interest in a company, it is almost bound to generate sizable long-term returns. The same can mostly be said about Prem Watsa, the founder and CEO of Fairfax Financial Holdings, who has been called the “Canadian Warren Buffett”. Fairfax Financial has witnessed an annual increase of 25% in its book value since 1985 and the investment manager has returned close to 100% collectively since 2007. After analyzing the 13F filings of both noteworthy investment managers, we have found that each of them has made investments in five different stocks, those being International Business Machines Corp. (NYSE:IBM), Wells Fargo & Co (NYSE:WFC), U.S. Bancorp (NYSE:USB), USG Corporation (NYSE:USG), and Precision Castparts Corp. (NYSE:PCP). With their credentials and returns history, it is clearly quite intriguing to know more about their shared positions in each of these companies, which we’ll facilitate in this article.

Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 142% over the last 32 months, which is more than 83 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

Warren Buffett’s Berkshire Hathaway is a major stockholder of International Business Machines Corp. (NYSE:IBM), owning 79.57 million shares valued at $12.77 billion. The fund manager owns 8.08% of the common shares of the technology firm, whose shares have grown by 4.34% year-to-date. Prem Watsa’s Fairfax Holdings owns 1.36 million shares of IBM with a market value of $218.78 million. International Business Machines Corp. (NYSE:IBM) is all set to repeat its success story in the data analytics market, as the firm is planning to increase investments in the emerging market. The company is hiring professionals for its free software project “Spark,” which excels in data analytics and allows companies to analyze large data. Along with these investment managers, Mason Capital Management and D E Shaw also have large stakes in International Business Machines Corp. (NYSE:IBM).

Wells Fargo & Co (NYSE:WFC) is another common pick of Buffett and Watsa. Wells Fargo is the largest stock investment of Buffett, who owns 470.29 million shares of the finance company with a market value of $25.58 billion. To put that in perspective, Buffett’s position in Wells Fargo is larger than the collective position of the more than 700 hedge funds that we track in any other stock. Berkshire Hathaway owns 9.13% of the common shares of Wells Fargo & Co (NYSE:WFC). Fairfax Holdings has also made an investment in the bank holding company, to the tune of 69,300 shares valued at $3.77 million. The shares of Wells Fargo are trading at their 52-week high share price of $57.90, and are up by 9.49% year-to-date. As per a recent announcement, Wells Fargo & Co (NYSE:WFC) is all set to acquire more property loan assets of General Electric Company (NYSE:GE)’s real estate unit, worth $9 billion, and the transaction is likely to be completed by the end of this quarter. Lansdowne Partners and Fisher Asset Management are among the other major shareholders of the bank holding company.

Buffett owns 83.77 million shares of U.S. Bancorp (NYSE:USB) valued at $3.66 billion, which gives the investment manager ownership of 4.59% of the overall common shares of the company. Prem Watsa reported ownership of 23,200 shares of U.S. Bancorp (NYSE:USB), with market value of $1.01 million. In a recent announcement, the board of directors of U.S. Bancorp announced a 4.1% increase in its dividend rate, hiking its annual dividend to $1.02 or $0.255 per quarter for a yield of 2.27%. Yacktman Asset Management and First Eagle Investment Management also hold large positions in the financial services company.

Both Buffett and Watsa have shown interest in USG Corporation (NYSE:USG), owning 39.0 million shares valued at $1.04 billion and 32,800 shares valued at $875,000, respectively. USG Corporation (NYSE:USG) reported quarterly revenue of $648.23 million for the first quarter of 2015, representing 5.1% year-over-year growth. The building material company has received a short-term “Hold” rating and a price target of $31.35 from analysts, representing an upside of 15.26% from its current share price. Besides Buffett and Watsa, Gates Capital Management and Appaloosa Management LP are among the other major stockholders of USG Corporation (NYSE:USG).

Precision Castparts Corp. (NYSE:PCP) has grabbed the attention of these two financial experts as well. Buffett’s current position in the metal product manufacturer includes 4.20 million shares with a market value of $882.17 million. Fairfax Holdings own 2,000 shares of Precision Castparts Corp. (NYSE:PCP) valued at $420,000, with no change in the position from the last 13F filing period. Precision Castparts Corp. (NYSE:PCP) reported a 69% drop in its net income from continuing operations for the fourth quarter of 2015, to $149 million, compared to the prior year net income of $478 million. Needless to say, it hasn’t been a great year for the company, whose shares have declined 12.22% year-to-date. Soroban Capital Partners and SQ Advisors have large stockholdings in Precision Castparts Corp. (NYSE:PCP).

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