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Here are the stocks Warren Buffett spent the last 9 months secretly accumulating a $6.9 billion stake in
Warren Buffett hasn’t seen much to like in the stock market recently.
With shares rising higher over the past 18 months, it has become increasingly difficult to find a great company trading at a fair price. The challenge is even more difficult for Buffett, who manages a portfolio of $377 billion in stocks and $189 billion in cash for Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B).
The current environment is reflected in Buffett’s portfolio management decisions. He is sold more shares than bought in each of the last six quarters. But there’s one stock that caught his eye in the third quarter of last year, and he’s been accumulating shares in each of the last three quarters.
By the end of 2023, he had purchased about $5 billion. The only problem is that we had no way of knowing exactly which stocks Buffett found so attractive, thanks to a special disclosure exemption granted by the SEC.
Things have finally wrapped up, with Berkshire’s latest 13-F filing disclosing all of the conglomerate’s stock positions as of the end of the first quarter. Here’s the mystery stock Buffett is buying.
Image source: The Motley Fool.
A stock that’s in Buffett’s wheelhouse
The stocks on Buffett’s buy list in each of the last three quarters have been commercial property and casualty insurers. little fat (NYSE:CB).
Buffett has acquired nearly 26 million shares of the company over the past three quarters, a stake that is now worth about $6.9 billion. That’s good enough to make it one of the top 10 holdings in Berkshire’s portfolio.
Chubb fits squarely within Buffett’s circle of competence. The Oracle of Omaha has been investing in insurance since the 1960s. Shortly after taking control of Berkshire Hathaway, a mere textile company, in 1965, Buffett added an insurance company to the conglomerate. Insurance is now at the core of Berkshire Hathaway’s operations, providing a valuable stream of premiums for Buffett to invest in.
With over 60 years in the insurance business, it’s safe to say Buffett knows when a insurance stock is attractive. His in-depth industry knowledge gives him an advantage in identifying undervalued insurers. Chubb has several attractive qualities as an insurance company, but its share price may not have fully reflected the quality of the business.
Many insurers performed well in 2023 thanks to higher prices and interest rates. Chubb was no exception. Its net earnings per share for the full year increased 75.9% thanks to a 13.5% increase in net premiums and improved underwriting margins issued. The strong results continued in the first quarter, with a 14.1% increase in net premiums written, likely due to higher prices.
The story continues
Chubb’s investments are also doing well. The company holds many long-term fixed income assets such as mortgage-backed securities and corporate bonds in its investment portfolio. This has resulted in weak relative returns as the Federal Reserve has raised interest rates, but is now producing strong growth in investment income every quarter. Investment income increased 25.7% in the first quarter.
Chubb’s core operations appear very strong and the investment framework is progressing well. It’s no surprise that Buffett was interested in the stock.
Should investors follow Buffett’s example?
Now that Berkshire Hathaway has reported that Chubb is the stock it has been buying for the past three quarters, Buffett may be done buying more shares, at least for now. The stock rose from about $200 a share when Buffett first bought it in the third quarter of last year to a new all-time high of $270 following the Berkshire disclosure.
Still, the stock is quite attractive. The stock trades for a forward P/E of just 11.6x, putting it firmly in the value camp that Buffett loves. Its price-to-book value of 1.7x is higher than its historical average, but it is also a fair price to pay considering its improving investments and strong underwriting operations.
Chubb remains a great investment for Buffett, even at this price. It ticks a lot of boxes. There is potential for Berkshire to continue to increase its investment, as it currently holds about 6.4% of the outstanding shares. It is a leader in its sector with excellent management. And it has a lower downside risk than the average company, thanks to the stock’s current valuation and management’s treatment of its balance sheet.
Investors looking for financial sector stocks with solid value to add to their portfolio may want to take a closer look at Chubb.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
Here are the stocks Warren Buffett spent the last 9 months secretly accumulating a $6.9 billion stake in was originally published by The Motley Fool