Shares of Fairfax India Holdings Corp. (TSX:FIH.U) soared 7.86% in the trading session following the release of its second-quarter results and are now up ~17% since my buy recommendation less than a month ago. Those are some pretty serious returns in just a few weeks, and the best part is, there’s way more upside to go for those who intend to hang on to their shares over the long term.
Although FIH.U has been a huge gainer this year (up ~64% YTD), shares are still attractively valued, and I believe that every Canadian investor who’s somewhat interested in obtaining exposure to the emerging markets should own FIH.U. It doesn’t just offer geographic diversification, but it also offers superior long-term returns without too much additional risk.
If you know Prem Watsa, the Canadian Warren Buffett, then you’re probably familiar with Fairfax Financial Holdings Ltd. (TSX:FFH) and Mr. Watsa’s conservative investment strategy. He has been a long-time bear, but now he’s bullish thanks to recent political events which affected his outlook. But regardless of his stance, his strategy remains the same; he hunts for long-term value to obtain next-level returns, while keeping downside protection and the preservation of capital in mind.
The Indian market is really hot right now, and FIH.U is an absolutely fantastic outlet to get exposure into that market. Who wouldn’t want Prem Watsa navigating the ship as FIH.U sails a higher growth market?
Fantastic Q2 2017 results worthy of a round of applause
For Q2, Fairfax India reported net earnings of US$268.6 million, up from the $38.3 million reported during the same period last year. Book value per share jumped to $14.08 at the end of the quarter, up from $10.25 on December 31, 2016. That’s a whopping 37.4% increase across two quarters! I believe the post-earnings rally was warranted and could be the start of a sustained rally to much higher levels.
There’s no question that Mr. Watsa’s smart Indian investments have been paying off. He knows the Indian market very well, and he’s been making smart deals like there’s no tomorrow. Going forward, more of the same can be expected, as Fairfax India puts its foot to the pedal.
Another deal, another huge opportunity
This July, Fairfax India acquired a 10% stake in Bangalore International Airport Limited (BIAL) for roughly ~12.9 billion rupees (US$200 million). BIAL operates the Kempegowda International Airport Bengaluru under an agreement with the Government of India, which ends in 2038, and it has the rights to renew for another 30 years after that. BIAL handled ~22 million passengers last year, and the opportunity lies in the ability to expand the airport’s capacity to ~60 million passengers by 2030. Those are impressive growth numbers, and, yes, 2030 is quite a while to wait, but if you’re a long-term investor, you’ll be enjoying very impressive gains from this project over the course of the next decade.
Bottom line
Fairfax India is a superb long-term bet and a must-have for any international investor’s portfolio. Shares have soared of late, but they are still attractively valued with a mere 5.38 price-to-earnings multiple, which almost seems too good to be true!
It’s not too good to be true. The value and long-term growth potential are real. Add this explosive growth gem to your TFSA and watch it fatten up over the next decade.
Stay smart. Stay hungry. Stay Foolish.
