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Prem Watsa Buys Buffett's Red Hat, Boosts Micron in 1st Quarter

- By Holly LaFon

Prem Watsa (Trades, Portfolio), founder of Fairfax Financial Holdings (FFH.TO), disclosed last week that he purchased five stocks during the first quarter, including Red Hat Inc. (RHT), a stock owned by Warren Buffett (Trades, Portfolio)'s company.


The value investor invests the float at his insurance holding company based in Toronto, often earning comparisons to Warren Buffett (Trades, Portfolio)'s model at Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B). In the first quarter, a reversal in the market correction of the fourth quarter brought positive investing results to his portfolio. Net gains on investments totaled $724 million for the quarter, with $528.8 million deriving from net gains on common stocks. The portfolio of common stocks was valued at $5 billion at first quarter-end, with the U.S.-listed equity portfolio valued around $1.82 billion.

Watsa is depending heavily on returns on stocks to achieve his aim of 15% return on shareholders' equity. Meeting the target would require 7% returns on in the investment portfolio, he said in his 2018 annual shareholder letter.

"To achieve a 7% return on our investment portfolio, we expect our equities, using a value oriented approach, to be major contributors," he wrote.

The direction of the equity side of the U.S.-listed portfolio, in turn, will be strongly influenced by the direction of several major positions among its 35 holdings. It was 36.75% weighted in Seaspan Corp. (SSW) and 25.85% invested in BlackBerry Ltd. (BB) as of the end of the first quarter. Watsa has other significant international positions not listed in the public equity portfolio.

Watsa has made a return on investments since Fairfax's 1986 inception of 8%.

In the first quarter, he introduced smaller positions in Red Hat Inc. (RHT), Celgene Corp. (CELG), Integrated Device Technology Inc. (IDTI), Spark Therapeutics Inc. (ONCE) and Stamps.com Inc. (STMP).

Watsa also boosted his existing holding of Micron Technology, a stock favored by David Tepper (Trades, Portfolio) and Mohnish Pabrai (Trades, Portfolio), making it his tenth largest position. He sold out of Bemis Co. Inc. (BMS), POSCO (PKX) and Shire PLC (SHPG).

New buys

Red Hat Inc. (RHT)

Watsa purchased 10,200 shares of Red Hat Inc., giving it 0.1% portfolio weight. The stock's first-quarter share price averaged $179.

Red Hat Inc. has a market cap of $33 billion; its shares were traded around $185.66 Monday with a price-earnings ratio of 80.37 and price-sales ratio of 10.30. Red Hat Inc. had an annual average earnings growth of 16.50% over the past 10 years. GuruFocus rated Red Hat Inc the business predictability rank of 5-star.

Celgene Corp. (CELG)

Watsa purchased 14,500 shares of Celgene Corp., giving it 0.07% portfolio weight. The stock's first-quarter share price averaged $87.

Celgene Corp. has a market cap of $66.88 billion; its shares were traded around $94.83 with a price-earnings ratio of 14.43 and price-sales ratio of 4.33. Celgene Corp had an annual average earnings growth of 26.80% over the past five years.

Integrated Device Technology Inc. (IDTI)

Watsa purchased 27,000 shares of Integrated Device Technology, giving it 0.07% portfolio weight. The stock's first-quarter share price averaged $48.

Integrated Device Technology Inc. has a market cap of $6.33 billion; its shares were traded around $48.99 with a price-earnings ratio of 84.47 and price-sales ratio of 7.07. Integrated Device Technology Inc. had an annual average earnings growth of 36.10% over the past five years.

Spark Therapeutics Inc. (ONCE)

Watsa purchased 11,600 shares of Spark Therapeutics, giving it 0.07% portfolio weight. The stock's first-quarter share price averaged $72.

Spark Therapeutics Inc. has a market cap of $4.14 billion; its shares were traded around $107.66 with a price-sales ratio of 58.69.

Stamps.com Inc. (STMP)

Watsa purchased 10,800 shares of Stamps.com, giving it 0.05% portfolio weight. The stock's first-quarter share price averaged $142.

Stamps.com Inc. has a market cap of $673.450 million; its shares were traded around $38.89 with a price-earnings ratio of 5.30 and price-sales ratio of 1.26. Stamps.com Inc had an annual average earnings growth of 36.90% over the past 10 years. GuruFocus rated Stamps.com Inc. the business predictability rank of 3-star.

Add: Micron Technologies (MU)

Watsa increased his Micron Technology holding 520.83%, buying 250,000 shares. The holding totaled 298,000 shares, making it 0.67% of the portfolio.

Micron Technology Inc. has a market cap of $38.31 billion; its shares were traded around $34.62 with a price-earnings ratio of 3.18 and price-sales ratio of 1.39. Micron Technology Inc. had an annual average earnings growth of 28.20% over the past 10 years. GuruFocus rated Micron Technology Inc. the business predictability rank of 3.5-star.

See Prem Watsa (Trades, Portfolio)'s portfolio here.

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This article first appeared on GuruFocus.