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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

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!