Prem Watsa’s Top Technology Stocks
If he likes them at $50, $44 and $27, he’s gotta love them at $16.31, right?
Prem Watsa, often called the “Canadian Warren Buffett,” is the founder of hedge fund Fairfax Financial, and insurance and investing corporation. Unlike Buffett, he likes technology stocks and as of the third quarter, they are 27.4% of his portfolio, the largest sector represented.
The largest technology stocks in his equity portfolio are: Dell Inc. (DELL), Research In Motion (RIM) and Motorola Mobility Holdings (MMI).
Research In Motion is a world leader in the mobile communications market and has a history of developing breakthrough wireless solutions. Research In Motion Ltd. has a market cap of $9.1 billion; its shares were traded at around $17.36 with a P/E ratio of 3.1 and P/S ratio of 0.5. Research In Motion Ltd. had an annual average earnings growth of 53.4% over the past 5 years.
UK-based research firm Canalys reported on November 1 that RIM’s U.S. market share fell from 24% in the third quarter of 2010 to 9% in the third quarter 2011, and it was below 10% for the first time. RIM’s volumes also declined 58% year over year.
“The picture for RIM in other parts of the world is clearly more positive. It grew 59% in EMEA and 56% in APAC over a year ago, largely driven by the continued popularity of BBM, its BlackBerry Messenger service. The Middle East and Africa and Southeast Asia were particular bright spots, and while October’s outage, focused on EMEA particularly, has hurt RIM’s reputation for reliability we do not expect it to have a substantial impact and expect a decent Q4 performance there,” said UK-based Canalys Senior Analyst, Tim Shepherd.
Research In Motion has by far the smallest P/E of its competitors, at 3.08, compared to 13.6 for Apple, and 22.88 for Nokia. Over the last five years, the stock has dropped 62%, and Tuesday trades for $18, a low not seen since 2005. The company’s earnings per share, however, are at a record $6.52 for fiscal 2011, an increase from $4.41 for fiscal 2010. Return on equity, return on assets and net income have each also reached all-time highs.
RIM has a strong balance sheet, with zero long-term debt, $281 million in long-term liabilities, though its cash decreased from about $2.9 billion in the quarter ended May 28, 2011 to about $1.4 billion in the quarter ended August 27, 2011. The company spent the money primarily on Nortel’s patent portfolio and capital expenditures.
Watsa also liked RIM’s management, as he said in his GuruFocus interview: “Particularly right now for RIMM, getting new management would be a disaster, would be the biggest mistake that the board would make.”
RIM is the fifth-largest holding in Watsa’s portfolio and is a relatively new addition. He bought 2,065,000 shares at an average of $50 in the third quarter 2010, 6,308,300 in the second quarter 2011 at about $44 per share, and 3,425,000 shares at about $27 per share.
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