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

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

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!