Today Fairfax Financial Holdings (FFH) dropped below 250 today and closed at 252.79 filling a gap created in late April. I got in at 250.50.
FFH is a Canadian holding company with subsidiaries involved in P&C insurance, reinsurance, and investment management. Prem Watsa, the founder, chairman, and CEO, has been called the “Canadian Warren Buffett.”
From a technical perspective, I think this pullback is a good buying opportunity. The price is sitting at resistance of a trend line and also a fibonacci line.
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From a fundamental perspective, FFH is also a good buy. I believe Watsa is an excellent investor whose interests are aligned with shareholders. FFH has grown its book value at 6.3% for the past seven years and right now is trading at a 0.9 P/B ratio.
One thing I don’t like about FFH is that for 2008 it had a 110.1% combined ratio (underwriting profitability – below 100 means underwriting is profitable, above 100 means underwriting is unprofitable). However, 2008 was a pretty insane year for any financial company, so I’m willing to overlook 2008 as a once in a lifetime event.
With this most recent quarter, there is evidence of improvement as FFH has shown a combined ratio of 98.7% compared to 99.7% for the first quarter a year ago. I believe FFH and its subsidiaries are committed to profitable underwriting and I believe FFH is both a good long-term holding (or a short-term trade) at this price level, especially if you were too afraid to buy in at the March lows.
If you’re interested in FFH, I reccomend some due diligence. Look through the yearly reports and google for news on Prem Watsa. I guarantee this will be educational even if you don’t invest in FFH.
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