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Meet the Oracle of... Toronto?


james22
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Mauldin's Smart Money Monday note:

 

Now I see the buy signal I’ve been waiting for with Fairfax…

For starters, the stock is the cheapest it’s been since the financial crisis.

Then there’s the business in India…

See, Fairfax recently released its second-quarter earnings. And I found a critical piece of information buried in the press release.

One of Fairfax’s holdings, and Indian insurance company called Digit, just became a lot more valuable. Digit recently raised a ton of money from a handful of venture capitalists. This pushed its implied total value over $2 billion. But Fairfax still has Digit on the books at $540 million.

The change won’t show in Fairfax’s financials until it releases its third-quarter results. When that happens, it should increase the company’s book value by $61 per share. That’s an 11% increase.

This might seem like a minor detail. But it’s a major buy signal for an insurance company like Fairfax.

 

CEO Prem Watsa bought $150 million worth of Fairfax stock not too long ago…

Watsa has built his career on shrewd stock picking. It’s a big reason Fairfax has done so well over the past 35 years. And last year, he made a massive wager on the company he knows best—his own.

Insiders buy for one reason: They think the stock will go up. It’s fairly common to see insider purchases worth a few million dollars. But $150 million? That’s extremely rare.

It’s also a great sign.

Shares of Fairfax have already climbed about 40% since the purchase. But my research indicates they still have a lot more room to run.

 

Remember, this stock is still extraordinarily cheap.

Today, Fairfax trades at around 0.75X price-to-book. That is just too cheap for a high-quality insurance company.

As a reference point, Berkshire Hathaway trades at a substantial premium to its book value—around 1.4X. Were Fairfax to even approach a more reasonable 1.2X price-to-book, the stock would have nearly 60% upside from current prices.

I like the setup here. Fairfax Financial is a solid, well-established company with a formidable CEO. But its stock is still undiscovered by most investors.

I just saw the buy signal I’ve been waiting for. Consider picking up shares now while they’re still ultra-cheap.

 

https://www.mauldineconomics.com/smart-money-monday/meet-the-oracle-of...-toronto

Edited by james22
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