Markel Corporation (NYSE:MKL) is an insurance company which invests its capital in the financial markets and therefore reports many of its long equity in positions in 13F filings as hedge funds and other major investors do. We track 13F filings partly for their role in developing investment strategies; for example, the most popular small cap stocks among hedge funds (as listed in our August 2012 newsletter) outperformed the S&P 500 by 18 percentage points between September and January (read more about our hedge fund strategies). We also use 13F filings as recommendations from fund managers- not necessarily to follow blindly, but to research further. Incidentally, we spoke with Tom Gayner, chief investment officer at Markel, in January to learn more about his investing process. Read our exclusive interview with Tom Gayner. Here are our thoughts on five of Markel’s top picks as of the beginning of 2013:
The largest position in Markel’s portfolio was what in theory should be many value investors’ favorite stock: Berkshire Hathaway Inc. (NYSE:BRK.B). Warren Buffett’s holding company (see Buffett’s stock picks) does trade at a premium to book value with a P/B ratio of 1.3, as investors believe that Buffett will manage Berkshire’s financial assets very effectively. While we of course admire Buffett’s investing ability, prospective long-term Berkshire shareholders should make sure that they are comfortable with the future investment team.
See three more stocks Gayner liked:
Diageo plc (NYSE:DEO), the alcoholic beverage company who is responsible for (among others) the Johnnie Walker, Crown Royal, and Smirnoff brands, was another of Gayner and his team’s favorite stocks. Diageo trades at 18 times trailing earnings, with revenue up 5% in its most recent quarter compared to the same period in the previous fiscal year; net income did increase at a much higher rate, but we doubt that growth is sustainable without similarly strong improvements on the top line. Renaissance Technologies, founded by billionaire Jim Simons, had initiated a position in Diageo during the third quarter of 2012 (check out more stocks Renaissance was buying).
Markel reported a position of 3.1 million shares in Brookfield Asset Management Inc. (NYSE:BAM), the $24 billion market cap real estate developer. Analyst consensus for 2013 has Brookfield valued at 31 times its current-year earnings. The company has been experiencing growth, but that pricing does give us some pause at least at first glance. Marty Whitman’s Third Avenue Management cut its stake in Brookfield during the third quarter but still closed September with 7.8 million shares in its portfolio (research more stocks Third Avenue owned).
Fairfax Financial Holdings Limited (FRFHF) rounded out Markel’s top five stock picks. Prem Watsa, head of Fairfax, has been called “the Warren Buffett of Canada” for his similar process of managing a holding company and for his investment success over the last 35+ years. While he is not as well known he deserves credit for nearly doubling Fairfax’s stake in BlackBerry (NASDAQ:BBRY) in the third quarter of 2012 when the stock was below $8. Find more of Watsa’s favorite stocks. Fairfax is valued at about the book value of its equity, with investors giving Watsa much less of a premium than Buffett.
Disclosure: I own no shares of any stocks mentioned in this article.
