Prem Watsa (Trades, Portfolio), manager of Fairfax Financial Holdings Ltd. (TSX:FFH, Financial), disclosed in regulatory portfolio filings that his firm’s top trades during the fourth quarter of 2021 included a new holding in Tencent Music Entertainment Group (TME, Financial), boosts to its stakes in Alibaba Group Holding Ltd. (BABA, Financial) and Nuance Communications Inc. (NUAN, Financial) and a reduction to its position in Crescent Capital BDC Inc. (CCAP, Financial).
In 1985, Watsa met Francis Chou (Trades, Portfolio), who explained that Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) made money using insurance float. Fairfax seeks a high rate on investment capital through a conservative value investment philosophy with an emphasis on total return.
As of December 2021, Fairfax’s $3.12 billion equity portfolio contains 63 stocks, with nine new positions and a quarterly turnover ratio of 1%. The top three sectors in terms of weight are financial services, technology and basic materials, representing 49.19%, 16.69% and 14.97% of the equity portfolio.
Tencent Music Entertainment Group
Fairfax purchased 409,000 shares of Tencent Music Entertainment Group (TME, Financial), giving the position 0.09% equity portfolio weight. Shares averaged $7.36 during the fourth quarter; the stock is significantly undervalued based on Friday’s price-to-GF Value ratio of 0.27.
GuruFocus ranks the Shenzhen, Guangdong-based entertainment and media company’s financial strength 7 out of 10 on the back of a strong Altman Z-score of 3.84 despite interest coverage and debt ratios underperforming more than 60% of global competitors.
Other gurus with holdings in Tencent Music include Baillie Gifford (Trades, Portfolio) and Frank Sands (Trades, Portfolio)’ Sands Capital Management.
Alibaba
Having established a 35,800-share stake in the third quarter, Fairfax added 108,000 shares of Alibaba (BABA, Financial) during the fourth quarter. The transaction elevated the position by 301.68% and the equity portfolio by 0.41%.
Shares of Alibaba averaged $145.10 during the fourth quarter; the stock is significantly undervalued based on Friday’s price-to-GF Value ratio of 0.31.
GuruFocus ranks the Chinese e-commerce giant’s profitability 8 out of 10 on the back of a three-star business predictability rank and profit margins that are outperforming more than 80% of global competitors.
Gurus with holdings in Alibaba include Charlie Munger (Trades, Portfolio)’s Daily Journal Corp. (DJCO, Financial), PRIMECAP Management (Trades, Portfolio), Baillie Gifford (Trades, Portfolio) and Dodge & Cox.
Nuance
The firm added 63,500 shares of Nuance (NUAN, Financial), expanding the position by 470.37% and its equity portfolio by 0.12%.
Shares of Nuance averaged $55.16 during the fourth quarter; the stock is significantly overvalued based on Friday’s price-to-GF Value ratio of 1.71.
GuruFocus ranks the Burlington, Massachusetts-based artificial intelligence software company’s financial strength 5 out of 10 on the back of interest coverage and debt ratios underperforming more than 80% of global competitors despite the company having a strong Altman Z-score of 6.5.
Crescent Capital BDC
The firm sold 457,247 shares of Crescent Capital BDC (CCAP, Financial), trimming 12.04% of the position and 0.28% of its equity portfolio. Shares averaged $19.17 during the fourth quarter.
According to GuruFocus, the Los Angeles-based business development company’s debt ratios underperform more than 83% of global competitors.
