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FRI, MAY 17, 2024
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Chubb is Berkshire's 'mystery' stock |
The "mystery" stock that Berkshire Hathaway was accumulating over the past three quarters is Chubb, a Swiss insurance holding company with a market value of $111 billion dollars.
Berkshire's SEC-mandated portfolio disclosures for last year's third and fourth quarters noted it had omitted "one or more holdings(s)" for which it had requested "confidential treatment," presumably to avoid having copycat buyers drive up its target's price as it continued to build its stake.
Berkshire's first-quarter filing released on Wednesday revealed that as of March 31, it held 25.9 million Chubb shares, a stake of 6.4%, currently valued at $7.1 billion. That makes it the tenth largest holding in Berkshire's portfolio.
Berkshire is now Chubb's second largest shareholder after mutual fund giant Vanguard, which has 38.4 million shares.
Catch-up filings for the previous two quarters show Berkshire bought 8.1 million shares in the third quarter and 12.0 million shares in the fourth quarter.
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We don't know exactly when purchases were made and what Berkshire paid per share. But using Chubb's average closing price for each quarter, $5.7 billion is a very rough estimate, giving Berkshire a solid gain on paper for its investment.
The stock is up 45% since the beginning the July-September quarter in which Berkshire started buying.
In another positive for Berkshire, Chubb raised its annual dividend by 5.8% to $3.64 a share. That's a yield of more than 1.3% based on today's price. |
We won't know for another three months if Berkshire made more purchases during the current quarter, but the stock did dip below $239 per share in late April, which could have been a buying opportunity. |
In a clear example of why Berkshire wanted to keep its interest in Chubb a secret, the stock jumped in the minutes after the company's after-the-bell filing on Wednesday. It closed today at an all-time high of $274.28, up 7.6% on the week. |
At Barron's, Andrew Bary writes that while a Berkshire bid to buy all of Chubb may not be likely, "It's a deal that makes strategic and financial sense." He notes that Buffett could put a big chunk of Berkshire's $189 billion in cash to work by offering a more than 20% premium of $325 per share for a $130 billion deal to buy "the best brand name in property and casualty insurance" with "strong underwriting results that outpace peers." That would value Chubb at 15 times earnings, the upper limit of what Buffett prefers to pay.
Bary cites a client note by CFRA analyst Cathy Seifert acknowledging there is "no indication" Berkshire plans to buy all of Chubb, but notes "Chubb's business mix of primarily commercial lines property-casualty coverage and high-end homeowners' coverage dovetails well with Berkshire's existing mix of business." |
Chubb CEO Evan Greenberg (CNBC | Scott Mlyn) |
Even as just an equity investment, though, it is getting good reviews.
CNBC.com's Yun Li reports Deutsche Bank analyst Cave Montazeri is telling clients Chubb is "an ideal fit for Warren Buffett’s investment philosophy, characterized by high-quality business with strong [returns on equity], a robust economic moat, a proven track record of compounding returns, and a distinguished management team."
Evercore ISI sees the investment as a "slight positive signal" for insurers in general, given Berkshire's "unique knowledge of industry dynamics." |
VIDEO: Lawrence Cunningham talks Berkshire Hathaway's investment in Chubb |
And in an appearance on CNBC's Last Call, Berkshire expert Lawrence Cunningham suggested Buffett may have found Chubb attractive as an "acknowledged high-quality business led by an outstanding CEO" that is making "significant" investments in Asia. |
Berkshire's filing this week also shows that during the first quarter it: -
Eliminated its stake in HP, worth less than $700 million as of March 31
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Trimmed its Louisiana Pacific holding by 6%, selling shares that would have been worth $38 million at the end of the quarter
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Reduced its Sirius XM position by almost 9%, roughly $14 million worth
We already knew about the other moves in the filing: |
BUFFETT AROUND THE INTERNET
Some links may require a subscription |
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HIGHLIGHTS FROM THE ARCHIVE |
'Three extraordinary pieces of luck' in insurance (2015) |
Warren Buffett explains how certain individuals he met over the course of his career led to Berkshire’s success in the insurance industry. |
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BERKSHIRE'S TOP U.S. STOCK HOLDINGS - May 17, 2024 |
Berkshire's top holdings of disclosed publicly traded stocks in the U.S., Japan, and Hong Kong, by market value, based on today's closing prices.
Holdings are as of March 31, 2024 as reported in Berkshire Hathaway’s 13F filing on May 15, 2024, except for: -
Mitsubishi, which is as of June 12, 2023. Tokyo Stock Exchange prices are converted to U.S. dollars from Japanese yen.
The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker. |
Please send any questions or comments about the newsletter to me at alex.crippen@nbcuni.com. (Sorry, but we don't forward questions or comments to Buffett himself.) If you aren't already subscribed to this newsletter, you can sign up here.
Also, Buffett's annual letters to shareholders are highly-recommended reading. There are collected here on Berkshire's website. -- Alex Crippen, Editor, Warren Buffett Watch |
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