Markel Corporation (MKL): Is This “Forever” Stock The Next Berkshire Hathaway Inc. (BRK.A)?

Page 1 of 2

Hidden inflation is an insidious devourer of profit. Forget what the Consumer Price Index is telling us — higher costs don’t always get passed on to the consumer. Sometimes quality is reduced instead.

Whether it’s the bag of potato chips that’s half-filled with air, the controversy of “pink slime,” or the shrinking amounts of cake mix in packages that used to hold more — whether we admit it or not, the inflation we’ve been worried about is already here.

It’s the kind of environment where we see “Forever Stocks” shine. These are companies that have businesses built to last through bear markets, rising interest rates and, yes, inflation.

This “Forever Stock” has an operating margin of 44%, which gives it plenty of wiggle room to withstand economic hardships. Expected earnings growth is 11.8%, and its business model has started to turn the heads of some of the biggest players on Wall Street. The company has been referred to as a “Baby Berkshire” since it’s an insurer with a large investment arm similar to Berkshire Hathaway Inc. (NYSE:BRK.A).

But why buy the baby version instead of Warren Buffett’s eponymous brain child? As Buffett explains: “Our future rates of gain will fall far short of those achieved in the past. Berkshire Hathaway Inc. (NYSE:BRK.A)’s capital base is now simply too large to allow us to earn truly outsized returns.” Berkshire Hathaway Inc. (NYSE:BRK.A) is too big to generate the enormous returns it did when it was smaller and more agile.

The “Forever Stock” I’m talking about is insurer Markel Corporation (NYSE:MKL). Markel Corporation (NYSE:MKL) specializes in insuring niche markets such as summer camps, antique motorcycles, auto races and amusement parks. It faces little competition in these markets, which gives Markel Corporation (NYSE:MKL) the ability to adjust rates as economic conditions change without losing its client base.

The specialty insurance company recently reported mixed results on second-quarter earnings, mainly due to its $3.3 billion buyout of competitor Alterra. But that should hardly be taken as bad news. The acquisition increased Markel Corporation (NYSE:MKL)’s book value by 12% to $452 per share, giving the stock a very attractive 1.17 price-to-book (P/B) ratio. Compare that with Berkshire Hathaway Inc. (NYSE:BRK.A)’s 1.45, and we start to see how Markel is the better value.

The size difference between the two companies reveals why Markel Corporation (NYSE:MKL) has the ability to invest in ways Berkshire Hathaway Inc. (NYSE:BRK.A) cannot. Markel Corporation (NYSE:MKL)’s market cap is just over $5 billion, less than 2% of the massive Berkshire Hathaway Inc. (NYSE:BRK.A).

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!