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Could this be the mystery stock that billionaire Warren Buffett has been adding to his holdings for Berkshire Hathaway's investment group?
The conglomerate is quietly accumulating a billion-dollar stake in a mystery company. Could this be the family's long-term competitor?
Berkshire Hathawayfirms(NYSE: BRK.A)(New York Stock Exchange: BRK)Warren Buffett, the chief executive officer of the company, is a legend in the investment world. Since taking over the failing textile company in 1965, Buffett has brought in nearly 20% in annual returns to investors. In other words, a $100 investment in the company in those days is now worth nearly $4.4 million.
The long track record of success of Berkshire is noteworthy, which is why investors follow the company's investment portfolio with eagle-like fervor. However, due to the popularity of Berkshire's investments, the conglomerate occasionally requests confidentiality when establishing a position in a stock so that the market is not tipped off until the purchase is complete.
In the last two quarters of last year, Berkshire Hathaway amassed a stock position of about $5.3 billion, and investors are speculating about what that might be. One company on my shortlist is highly rated by Warren Buffett and his longtime郃 partner Charlie Munger, and has other ties to Berkshire.
Berkshire bought about $5 billion of stock in a company last year
In the second quarter, Berkshire reported investing US$23.5 billion in "Banking, Insurance and Finance". By the end of the year, this amount had risen to US$27.1 billion, an increase of US$3.6 billion. Berkshire also canceled investments inGlobe Liferespond in singingMarkel The investment amounted to approximately US$5.3 billion.
We also know that if resoncil owns more than 5% of the outstanding shares, he must report it to the SEC. With this in mind, it is likely that Berkshire has invested in a company with a market capitalization of $100 billion or more, thus significantly narrowing the pool of potential candidates.
Progressive earns high praise from Berkshire Hathaway leaders
One of the companies that meets Berkshire Hathaway's standards isProgressive (NYSE: PGR)It is the second-largest auto insurer in the U.S., behind State Farm. resonance Hill Hathaway's wholly owned GEICO rounds out the top three.
When it comes to the auto insurance industry, Warren Buffett sees it as a two-way battle between Progressive and GEICO. He once said
For a long time, I've thought Progressive was very well run. They have an appetite for growth. Sometimes they learn from us. Sometimes we imitate them. I think that's going to be true in five years, in ten years.
Warren Buffett's right-hand man, the late Charlie Munger, also praised Progressive, saying, "In the nature of things, every once in a while, someone does something a little better than we do.
Progressive's Coverage Advantage
Progressive has been on the radar of Warren Buffett and Munger for many years because of its underwriting prowess. Since it went public in 1971, the company has focused on writing profitable insurance. At the time, it was widely recognized that insurers should break even on their policies and get a real return on their investment portfolio.
Matron Peter Lewis swam against the tide by prioritizing the achievement of a 96 Combined Factor Ratio (CFR), which means the company earns $4 in profit for every $100 in premiums written. This goal has always been at the heart of Progressive's disciplined underwriting and is a key reason for the stock's long history of outperformance.
One way to evaluate Progressive's performance is to examine its loss ratio. This is a component of the Composite Ratio and is the ratio of losses to premium income. Over the past nine years, Progressive has averaged a loss ratio of 731 TP3T, an excellent figure in the highly competitive automobile insurance industry, and GEICO has been a reliable underwriter, averaging a loss ratio of 821 TP3T over this period.
Other links between Berkshire and Progressive
Progressive could also be a candidate for Berkshire Hathaway because of Todd Combs' ties to Progressive Insurance. Combs worked alongside Ted Weschler, who, along with Warren Buffett, helped manage the resonance portfolio at Berkshire. Combs is familiar with Progressive from his work as a pricing analyst there in the late 1990s.
In an interview on the Art of Investing podcast, Combs recalled a conversation he had with Warren Buffett in 2010 before he was offered a job at Berkshire Hathaway. Buffett asked Combs what he thought of Progressive versus GEICO, and Combs told him that GEICO specialized in marketing and branding, but that Progressive's focus on data would drive its long-term success. Combs was right about Progressive's data advantage - the company's stock price has crushed GEICO's over the past few decades.
Quality companies for long-term investors
Berkshire Hathaway has long viewed Progressive as a competitor, and the conglomerate may have seen a great opportunity to acquire the insurer late last year, as Progressive's underwriting business continues to be profitable, holding its annual consolidated claims ratio below 96 for the 23rd consecutive year. Since the beginning of the year, the company's stock price has climbed 28%.
We won't know if Berkshire will buy Progressive until its first-quarter 13-F filing is released in mid-May, provided the filing isn't flagged as confidential again. Regardless, Progressive has been an excellent stock for long-term investors. Even if Berkshire doesn't buy it, it could be a solid addition to your current portfolio.
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Courtney Carlsen owns shares of Progressive.The Motley Fool's positions recommend Berkshire Hathaway and Markel Group.The Motley Fool recommends Progressive.The Motley Fool has a disclosure policy. The Motley Fool recommends Progressive.
Could this be the mystery stock that billionaire Warren Buffett has been adding to his Berkshire Hathaway portfolio? This post was originally published by The Motley Fool.
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