Analysts at the Bank of Montreal recently revealed a list of 28 stocks they believe are the market's highest-quality businesses.
"While we continue to be relatively bullish on the outlook for U.S. stocks," the bank revealed, "we do believe that investors will be forced to contend with higher levels of volatility over the near term." By investing in high-quality businesses, these analysts believe investors can protect their portfolios without sacrificing profits.
Which stocks is the bank recommending? One is a recent Warren Buffett stock that every investor should strongly consider.
Wall Street analysts love this Buffett stock
In developing its "high-quality stock" screen, Bank of Montreal analysts looked at a variety of factors. It brought together debt ratings, earnings per share volatility, returns on equity, and liquidity metrics. Several Buffett stocks passed the test, including Visa and Coca-Cola. But it was a recent addition to the Berkshire Hathaway portfolio that caught my eye: Property and insurance giant Chubb(NYSE: CB).
It's not just Bank of Montreal analysts who are excited about Chubb's potential. More than a dozen Wall Street analysts currently have a "buy" or "overweight" rating on the stock. Only two analysts have a "sell" or "underweight" rating for Chubb.
What's to love about Chubb? Plenty of things. But the most exciting aspect is exactly what Bank of Montreal analysts highlighted: The company's ability to navigate rocky markets without sacrificing long-term upside potential. A look at the 2008 financial crisis reveals Chubb's relative strength. At a time when financial stocks were leading the market lower, Chubb, which is very much a financial stock, actually outperformed the market during the worst of the downturn. From 2007 to 2010, Chubb stock fell just 11%, versus a 16% decline for the S&P 500. Revenue growth for Chubb throughout this entire period remained positive.
Here's the most important part: Chubb had the capital and profitability to invest throughout the crisis, taking advantage of weakening competition. As soon as the crisis ended, revenue shot sharply higher. From 2010 through today, Chubb has increased its revenue by an astounding 257%. That's helped the stock rise in value by 636% over that time frame, versus a return of just 568% for the S&P 500. Today, the company is posting returns on equity of around 16% -- the highest in decades.
All this data supports the thesis that Chubb is not only a relative safe harbor during market volatility but can invest during a crisis to exit even stronger than before. But are shares still a buy now that they're approaching all-time highs? Warren Buffett seems to think so, and there's reason to believe he's right.
Here's why it's not too late to buy shares of Chubb
Late last year, Buffett filed for a disclosure exemption that would allow him to amass a stake in an unnamed company without reporting it. He was granted this exemption, but in May, it was revealed that Berkshire had built a $6.7 billion position in Chubb. Shares jumped on the news, but this looks like it could easily become one of Berkshire's long-term core holdings.
Buffett and Berkshire are no strangers to the insurance market. The foundation of Berkshire's empire is a suite of insurance businesses focused on nearly every segment of the market, from automotive to reinsurance. Chubb fits cleanly into this portfolio. It's currently the world's largest publicly traded property and casualty insurance provider, has a strong history of disciplined underwriting, and is currently posting record profitability as pricing hardens due to decreased competition.
This is no accident. By maintaining a conservative capital structure, Chubb has repeatedly been able to put billions of dollars to work even as competitors begin pulling back. Chubb has also been able to return huge sums to shareholders through dividends and share repurchases. Over the past eight years, the company's share count has fallen from around 470 million to just 406 million.
From a valuation perspective, Chubb is reasonably priced at just 11 times earnings and 1.8 times book value. Its balance sheet remains rock solid. High profit margins and returns on equity, meanwhile, should be maintained in the near future due to continued industrywide pricing improvements.
Make no mistake: Chubb is not a get-rich-quick stock. Instead, it's simply a high-quality business with a proven history of success in both bull and bear markets. With a reasonable valuation and Warren Buffett's blessing, it's not hard to see why Wall Street analysts love this reliable stock.
Should you invest $1,000 in Chubb right now?
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Visa. The Motley Fool has a disclosure policy.
