Picture supply: Getty Pictures
Canadian traders who missed the current July bounce could also be tempted to attend for a pullback in the direction of the current market lows earlier than initiating any positions. Undoubtedly, no one desires to be caught chasing shares on the way in which up, solely to be slammed with a plunge simply as steep because the run-up.
Bear market bounces, or bull traps, as they’re referred to as, could make it difficult to be a internet purchaser of securities after such a strong month-to-month run. Although a handful of bear market bounces within the S&P 500 and Nasdaq 100 within the first half of the 12 months, it’s inconceivable to inform if the July rally will find yourself being sustainable till effectively after the actual fact.
In any case, traders ought to focus extra on low-cost alternatives flying by their radar than trying to foretell what markets will do in August. Certainly, August may go both method after probably the greatest months for markets in current reminiscence.
On this piece, we’ll have a look at one intriguing inventory that I discover most compelling at this vital market juncture.
Fairfax Monetary Holdings
Fairfax Monetary Holdings (TSX:FFH) is a diversified insurance coverage and holding firm run by Prem Watsa — a person many seek advice from as Canada’s Warren Buffett. The company construction of Fairfax could also be much like that of Buffett’s empire, and Watsa could also be a affected person worth investor. Nonetheless, Watsa stands out as extra of a deep-value investor prepared to look to the depths to seek out the biggest margins of security on the market.
It’s not simple to be a deep-value investor, particularly in periods the place there’s a scarcity of worth available. Now that the tides have turned on shares, Watsa might be able to discover extra locations on this market to “inventory choose” his method to outperformance.
Certainly, Watsa is understood to hedge his bets when he sees indicators of bother. That’s a major purpose why shares of FFH held their very own in the course of the 2008 inventory market crash, rallying within the face of turmoil.
In 2020, Watsa wasn’t capable of pivot as rapidly. The inventory promptly shed 45% of its worth from its 2020 peak to its trough earlier than recovering totally within the again half of 2021. Yr thus far, FFH inventory has been crushing the TSX, up 11%.
Regardless of the resilience, shares commerce at 0.9 price-to-book (P/B) a number of, which is effectively under the insurance coverage trade common P/B of 1.9. With a single-digit low cost to Fairfax’s e-book worth, the danger/reward state of affairs appears too good to cross up, even when the markets appear overdue for a mini-correction after such a steep July leap.
A troublesome second quarter for Canada’s Warren Buffett
Although Fairfax is a superb low-beta inventory to personal for powerful occasions, the agency just isn’t proof against wild market swings. Fairfax clocked in a internet lack of US$881.4 million in Q2 on account of US$1.5 billion in internet funding losses. Understandably, nearly everybody, together with Warren Buffett, noticed their investments take a success, because the S&P 500 plunged into bear market territory within the first half of the 12 months.
With shares choosing up traction once more, many corporations, Fairfax included, may see internet losses flip into internet features, as Watsa has but to understand such losses on the dip. If something, Watsa could also be extra inclined to prime up his positions ought to volatility persist via 12 months’s finish.
