Warren Buffetts Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has one of the world’s most closely watched investment portfolios. That’s why it was alarming when it sold its shares in several blue-chip stalwarts — including Apple, Bank of America, DecisiveAnd PK — during the first half of 2024.
Buffett once told investors to “be fearful when others are greedy, and be greedy only when others are fearful.” His recent moves suggest investors are becoming too greedy after the S&P 500 index has repeatedly reached new highs over the past year.
But amid all those sales, Berkshire has been increasing its stake in the US-Swiss insurance giant Chubb Limited (NYSE: CB)It initially bought 8.1 million shares of Chubb in the third quarter of 2023, increased its position by 12 million shares in the fourth quarter and bought another 5.8 million shares in the first quarter of 2024.
That represents a 6.4% stake in Chubb, and those shares now account for 2.3% of Berkshire’s entire portfolio. Should investors follow Buffett’s lead and invest in this leading insurer?
How fast is Chubb Limited growing?
Chubb is the world’s largest publicly traded provider of property, supplemental health and casualty insurance. Based in Zurich, Switzerland, the company does business in 54 countries and territories and employs approximately 40,000 people worldwide.
The current company was formed after ACE Limited acquired the original Chubb Corporation and inherited the brand in 2016. It subsequently acquired additional companies, such as Healthy Paws and Catalyst Aviation, to expand its portfolio. From 2016 to 2023, revenue grew at a compound annual growth rate (CAGR) of 7%, while earnings per share (EPS) grew at a CAGR of 14%.
Chubb offers a diverse range of insurance products, so it’s generally easier to measure long-term growth through consolidated net premiums and core operating income. The company notably experienced a slowdown during the onset of the COVID-19 pandemic in 2020, but its business quickly recovered over the next three years.
|
Metric |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|
|
Consolidated net premium growth |
5.5% |
4.8% |
12% |
10.3% |
13.5% |
|
Core operating profit growth |
7.1% |
(27.7%) |
7.8% |
21.3% |
48.5% |
Data source: Chubb Limited.
In the first half of 2024, Chubb’s consolidated net premiums grew 12.9% year-on-year, while core operating income rose 15.7%. The company attributed the expansion to robust growth in property & casualty (P&C), life insurance and investment income.
Analysts expect Chubb’s revenue and core earnings per share to both rise about 9% for the year. Based on those expectations, Chubb still looks dirt cheap at 12 times forward earnings. It also pays a forward dividend yield of 1.35%.
Should You Follow Warren Buffett’s Example?
It’s easy to see why Warren Buffett likes Chubb. It’s well-diversified, has a wide moat, and its low multiple should limit downside potential. Top insurance companies also tend to be evergreen stocks that can withstand economic downturns.
Furthermore, Berkshire Hathaway already directly owns insurance companies like GEICO, Gen Re and Alleghany. Its own underwriting and investment businesses generated 40% of total operating profit last year. As such, it makes perfect sense for Berkshire to invest in a resilient sector it knows well, as more macro-sensitive sectors face unpredictable headwinds.
Chubb isn’t an exciting investment, but its shares have steadily risen more than 70% over the past five years as it has bought back more than 10% of its shares. So if you’re worried about high interest rates, geopolitical conflicts or other macro headwinds crushing your high-growth stocks this year, buying some shares of Chubb might be a smart idea.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and HP. The Motley Fool has a disclosure policy.
Warren Buffett Is Buying Stock In This Company. Should You Do The Same? was originally published by The Motley Fool
