Our database of insider trading activity shows some recent purchases at insurance company Markel Corporation (NYSE:MKL). Three insiders bought between 100 and 200 shares- even that is a moderately large insider buy, given the stock price in the $430 range- and a Board member bought 1,000 shares at an average price of $428.99 per share. Studies show that on average stocks bought by insiders tend to outperform the market (read our analysis of studies on insider trading) and stocks which multiple insiders are buying tend to do particularly well (see how well consensus insider purchases beat the market). Markel has announced plans to merge with fellow insurance company Alterra Capital Holdings Ltd (NASDAQ:ALTE).
In its 10-Q for the quarter ending September 2012, Markel reported that its premiums revenue rose 4% from the third quarter of 2011. Investment income and realized gains on investments showed little change in terms of the company’s overall revenue, but total revenue rose 13% due to other items. Miscellaneous expenses also drove growth in costs, with the result being that Markel’s earnings were down slightly. The book value of Markel’s equity has also risen, and it now trades at a P/B ratio of 1.1.
The small premium to book value corresponds with where Markel Corporation trades in terms of its earnings: the trailing P/E multiple is 18, which we would think of as being high unless we expected the company to generate substantial earnings growth over the next several years. We’ve seen that in its most recent quarter net income was actually down, and so we don’t think that we would be buying right now; even with the consensus insider purchases we would want to wait and see an improvement on the bottom line. This is particularly the case given that a normally optimistic sell-side community actually expects lower earnings in 2013, as shown by the forward P/E of 22. In addition, M&A tends to reduce shareholder value and so we’d have that concern as well.
Markel Corporation is one of Akre Capital Management’s favorite stocks; the fund, which is managed by Chuck Akre, owned about 200,000 shares at the end of the third quarter. This was essentially unchanged from three months earlier. Learn more about Akre's approach to investing and see more of his stock picks. Robert Caruso’s Select Equity Group also reported a large position in Markel (check out more stocks that Select owned).