Warren Buffett's Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) owns one of the world's most closely watched investment portfolios. That's why it was alarming when it sold its shares of several blue chip stalwarts -- including Apple, Bank of America, Paramount, and HP -- throughout the first half of 2024.
Buffett famously told investors to "be fearful when others are greedy and be greedy only when others are fearful," and his recent moves suggest that investors are getting too greedy after the S&P 500 index repeatedly set new highs over the past year.
Image source: Getty Images.
But amid all that selling, Berkshire increased its stake in the American-Swiss insurance giant Chubb Limited(NYSE: CB). It initially purchased 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. It's based in Zurich, Switzerland, does business in 54 countries and territories, and employs about 40,000 people worldwide.
The current company was created after ACE Limited acquired the original Chubb Corporation and inherited its brand in 2016. It subsequently acquired additional companies like Healthy Paws and Catalyst Aviation to expand its portfolio. From 2016 to 2023, it grew its revenue at a compound annual growth rate (CAGR) of 7% as its earnings per share (EPS) rose at a CAGR of 14%.
Chubb provides a diverse range of insurance products, so it's generally simpler to gauge its long-term growth through its consolidated net premiums and its core operating income. It notably experienced a slowdown during the onset of the COVID-19 pandemic in 2020, but its business recovered quickly over the following three years.
Metric | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
Consolidated net premiums growth | 5.5% | 4.8% | 12% | 10.3% | 13.5% |
Core operating income 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 rose 12.9% year over year as its core operating income increased 15.7%. It attributed that expansion to its robust growth in property and casualty (P&C) underwriting, life insurance, and investment income.
Analysts expect Chubb's revenue and core operating income per share to both rise about 9% for the full 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 lead?
It's easy to see why Warren Buffett likes Chubb. It's well diversified, has a wide moat, and its low multiple should also limit its downside potential. Top insurance companies are also usually evergreen stocks which are resistant to economic downturns.
Furthermore, Berkshire Hathaway already directly owns insurance companies like GEICO, Gen Re, and Alleghany. Its own insurance underwriting and investment businesses generated 40% of its total operating earnings last year. Therefore, it makes perfect sense for Berkshire to invest in a resilient sector it knows well as the more macro-sensitive sectors face unpredictable headwinds.
Chubb isn't an exciting investment, but its stock has steadily risen more than 70% over the past five years as it's repurchased more than 10% of its shares. So if you're worried about elevated interest rates, geopolitical conflicts, or other macro headwinds crushing your high-growth stocks this year, it might be a smart idea to buy a few shares of Chubb.
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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.
