Buffett, Watsa: When great investors think alike

See which stocks both gurus owned in the first quarter.

By GuruFocus.com Jun 1, 2012 1:38PM

Image: Handshake (© Image Source Black/Jupiterimages)Investors Warren Buffett and Prem Watsa have a lot in common. Both run insurance companies and invest the "float" -- the money from insurance premiums that has not been used for disasters. Both are unusually successful at it, too. Watsa has an 8,396% 25-year cumulative return compared to 829.8% for the S&P, and Buffett has a 4,724% 25-year cumulative return.


Both also invest in companies based mainly on fundamentals, according to Ben Graham's teachings.


In the first quarter of 2012, they had these stocks in common: Johnson & Johnson (JNJ), US Bancorp (USB), USG Corp. (USG) and Wells Fargo (WFC).


Prem Watsa, CEO of Toronto-based Fairfax Financial Holdings, owns 5,947,300 shares of Johnson & Johnson, the company engaged in the manufacture and sale of a broad range of products in the health-care field in many countries worldwide. His holding is valued at $392 million as of March 31, 2012, which accounts for 17.7% of his equity portfolio. Warren Buffett, CEO of Berkshire Hathaway (BRK.A/BRK.B), owns 29,018,127 shares of JNJ, valued at $1.9 billion as of March 31, 2012, which accounts for 2.5% of his equity portfolio.

Buffett first bought over $600 million of Johnson & Johnson in 2006, paying around $58.59 per share. The stock is trading Friday around $61.80 per share.


Johnson & Johnson has a market cap of $171.37 billion; its shares were traded at around $62.535 with a price-to-earnings ratio of 12.5 and price-to-sales ratio of 2.6. The dividend yield of Johnson & Johnson stocks is 3.9%. Johnson & Johnson had an annual average earnings growth of 7.2% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 4-star.


Watsa owns 4,448,310 shares of U.S. Bancorp, valued at $141 million as of March 31, 2012, which accounts for 6.4% of his equity portfolio. Buffett owns 69,039,326 shares of USB, valued at $2.2 billion as of March 31, 2012, which accounts for 2.9% of his equity portfolio.


U.S. Bancorp is the fifth-largest commercial bank in the U.S., with $341 billion in assets as of March 31, 2012. Buffett first bought a stake in U.S. Bancorp valued higher than $700 million in 2006, at a price of about $31.22, and Friday the stock is trading around $30.

Watsa bought and sold a small stake in 2007 and 2008. Then, in the third quarter of 2008 he bought a small stake again, and added 15,828,700 shares in the first quarter of 2009 when the stock dropped to $15.20 per share, making a significant profit.


U.S. Bancorp has a market cap of $59.11 billion; its shares were traded at around $31.055 with a price-to-earnings ratio of 12.1 and price-to-sales ratio of 2.8. The dividend yield of U.S. Bancorp stocks is 2.5%. U.S Bancorp had an annual average earnings growth of 0.7% over the past 10 years.


The third-largest stock the two own in common is USG Corp., a company that makes and distributes building systems through its U.S. subsidiaries. Watsa owns 6,794,000 shares of USG, valued as $117 million as of March 31, 2012, which accounts for 5.3% of his equity portfolio. Buffett owns 17,072,192 shares of USG, valued as $294 million as of March 31, 2012, which accounts for 0.39% of his equity portfolio.


Watsa began investing in USG Corp. before the third quarter of 2007. He paid an average of more than $41 for 4,500 shares in the third quarter of 2007 and added more as the price dropped. He added the most, 7,094,700 shares, in the fourth quarter of 2008 when the price fell all the way to about $12.50 per share. It is trading around $14 on Friday.


Buffett's holding of USG Corp. is 17,072,192 shares, which he has held since prior to the first quarter of 2007.


USG shares were traded at around $15.24 with and price-to-sales ratio of 0.6. After declining for four years, USG's revenue increased from $2.9 billion in 2010 to $3 billion in 2011. It has been losing money since 2008, but the losses have been smaller since 2009. Free cash flow was negative for the past two years. The company's difficulties have stemmed from a recession in their key markets -- housing construction. In 2011, it focused on restructuring, which helped reduce its operating loss by 24%. The company is also diversifying, with particular success in Mexico, where operating profit increased 24% as the U.S. market slumped to almost record lows.


Watsa owns 2,956,660 shares of Wells Fargo, valued at $101 million as of March 31, 2012, which accounts for 4.5% of his equity portfolio. Buffett owns 394,334,928 shares of WFC, valued as $13,463 million as of March 31, 2012, which accounts for 17.9% of his equity portfolio.


Watsa initiated his stake in Wells Fargo in the fourth quarter of 2008 and made his biggest purchase, 16,513,600 shares, in the first quarter of 2009 at about $16.50 per share. He began reducing the stake dramatically in 2010 when the share price reached the upper $20s. In the first quarter of 2012, he reduced the stake a further 34.46%.

Wells Fargo is Buffett's second-largest holding. He has had a stake in the company since before the second quarter of 2007 and has been aggressively adding shares in the last several years, with only two small sales in 2008. He owns 7.47% of the bank's shares outstanding. It is trading Friday around $30.50.


Wells Fargo is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services through stores, its Internet site and other distribution channels across North America as well as internationally.


The bank increased its dividend rate to $0.22 per share quarterly starting in the first quarter 2012, from a dividend of $0.12 per share quarterly the previous year. Wells has also increased its earnings each year since 2009 and was named the "most valuable bank brand in the U.S.," according to The Brand Finance Banking 500 report in February. Wells Fargo has a market cap of $168.15 billion; its shares were traded at around $31.99 with a price-to-earnings ratio of 11 and price-to-sales ratio of 1.9. The dividend yield of Wells Fargo stocks is 2.8%. Wells Fargo had an annual average earnings growth of 2.2% over the past 10 years. GuruFocus rated Wells Fargo the business predictability rank of 2-star.


See Buffett's portfolio here, and Watsa's portfolio here.

 

More from GuruFocus

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

114
114 rated 1
280
280 rated 2
473
473 rated 3
639
639 rated 4
637
637 rated 5
662
662 rated 6
640
640 rated 7
498
498 rated 8
287
287 rated 9
121
121 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
COPCONOCOPHILLIPS9
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
KOGKODIAK OIL & GAS Corp9
CVXCHEVRON CORPORATION8
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.