Warren Buffett is capable of making decisions independently and does not require advice from others. Berkshire Hathaway is the name of a multinational conglomerate holding company. ‘s ( BRK.A 0.28% ) ( BRK.B 0.33% ) With a cash reserve of almost $277 billion, it’s difficult not to wonder about the potential actions the renowned investor could take with such a large sum of money.
If I were in charge of managing Berkshire Hathaway’s investment portfolio, I have a clear idea of what I would do with a portion of the substantial funds available. Below are two ideal companies that Warren Buffett could consider acquiring next.
A clear and straightforward option
I wouldn’t be shocked at all if Buffett is already contemplating boosting Berkshire’s investment in. Chubb ( CB 0.86% ) In my opinion, it would be logical to fully acquire the insurance company.
Buffett started acquiring Chubb shares last year, but initially, the public was unaware that Berkshire Hathaway was investing in an undisclosed company. Following continuous purchases over several months, Berkshire Hathaway now holds a 6.4% ownership in Chubb, valued at almost $7 billion.
Chubb is a highly suitable fit for Berkshire Hathaway, to the extent that it is surprising Warren Buffett has not acquired it previously. The company provides various types of insurance, such as property and casualty, personal accident, supplemental health, and life insurance, in 54 different countries and territories. Additionally, Chubb offers reinsurance services.
Berkshire Hathaway’s insurance division currently consists of GEICO, Guard, and General Re, which focus on different types of insurance such as auto, home, life, commercial, excess, and reinsurance. Chubb’s insurance products are largely in line with what Berkshire already offers.
Chubb is in a solid financial position, consistently generating profits, and its shares are priced attractively. the ratio of a company’s stock price to its earnings per share approximately 12.5.
Another candidate flying under the radar
I believe Chubb could potentially become Buffett’s next major investment, while another company could be a smaller but promising addition to Berkshire Hathaway’s portfolio.
Kinsale Capital Group ( KNSL 1.01% ) Specializes in a specific market segment – providing excess and surplus (E&S) insurance tailored for small businesses. While Berkshire Hathaway is already involved in the E&S market, purchasing Kinsale would allow them to access the top-tier offerings in this sector, in my opinion.
The average combined ratio From 2021 to 2023, Kinsale was significantly more profitable than other top specialty insurers with a combined ratio of 77.2%, while the industry average was 92.8%. The exceptional profitability of Kinsale can be attributed to two main factors that set it apart from its competitors.
To begin with, the company’s underwriting procedure is exceptional. In contrast to its competitors, Kinsale does not outsource underwriting to agents, brokers, or any other intermediaries. Additionally, the company’s technological system enhances its operational effectiveness.
While Buffett may have reservations about Kinsale’s high valuation, given that its shares are trading at over 31 times forward earnings, it is worth noting that Berkshire Hathaway’s portfolio also consists of pricier stocks. Nu and Snowflake .)
I believe that Kinsale should be valued highly. The stock’s annual growth rate of 51% from 2016 to 2023 is almost four times higher than the profits for the same period. S&P 500 Up to now in 2024, Kinsale has achieved returns that are more than three times higher than those of the S&P.
There is a surplus of money remaining.
Berkshire Hathaway has the financial capability to purchase both Chubb and Kinsale. Chubb is valued at approximately $108 billion in the market, whereas Kinsale’s market value is less than $11 billion. Even if Buffett paid more than their current market prices, he could buy both insurance companies and still have more than $150 billion in cash remaining.
Is it possible that Buffett will decide to utilize some of Berkshire’s significant cash reserves to acquire a portion or even all of these companies? The answer is uncertain. Nevertheless, both Chubb and Kinsale remain excellent choices for long-term investors who do not have access to the same level of funds as Buffett.
