There’s an old -- and very appropriate -- investing saw that says, "Tips are for waiters." So I'm not going to bother giving you a stock tip. I do, however, have a stock idea for you.
What's the difference? Well, a stock tip is generally a hush-hush, wink-wink affair where the tipper expects the tip-ee to run out and buy the stock based on the tip alone. A stock idea, on the other hand, is a good starting point, but is in need of further research before it becomes a fully-baked investment thesis.
So, let's cut the jibber-jabber and get right to today's idea: Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B). The Motley Fool's CAPS community has overwhelmingly recommended the class A shares of the stock, with more than 2,900 members giving it an outperform rating versus just 70 that have rated it an underperformer.
Berkshire Hathaway is probably best known as the wealth-generating powerhouse run by investing legend Warren Buffett. The core of the company's business is insurance, which includes GEICO, General Re, and National Indemnity.
The company also has a number of subsidiaries in a variety of industries, including See's Candies, Fruit of the Loom, NetJets, Business Wire, Dairy Queen, and Benjamin Moore. Of course, the "special sauce" of the company lies with Buffett's amazing ability to allocate capital and invest in and acquire high-quality businesses at attractive prices.
Let's take a better look at how Berkshire stacks up against some comparable companies:
|
Company
|
TTM Net Profit Margin
|
One-Year Return on Equity
|
Tangible Book Value Multiple
|
CAPS Rating
(5 max)
|
|
Berkshire Hathaway
|
2.4%
|
2.3%
|
2.1
|
*****
|
|
Markel (NYSE: MKL)
|
(4.1%)
|
(3.2%)
|
1.7
|
*****
|
|
The Travelers Cos. (NYSE: TRV)
|
10.9%
|
9.9%
|
1.2
|
****
|
|
The Chubb Corp. (NYSE: CB)
|
11.7%
|
10.5%
|
1.2
|
****
|
|
Allstate (NYSE: ALL)
|
(7.9%)
|
(14.1%)
|
4.7
|
***
|
|
W.R. Berkley (NYSE: WRB)
|
1.7%
|
2.2%
|
1.4
|
***
|
Source: CAPS and Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.
As you can see from the chart above, the vitals in the insurance industry are tough to compare right now, since some companies have taken significant hits to their investment portfolios as markets have weakened. Berkshire, for instance, took a $3.6 billion hit on its investments in the first quarter, which helped drag its profit margin and return on equity down.
But if one thing is clear when we compare Berkshire to other insurers, it's that both investors at large and those in CAPS seem confident that the company will continue to be successful. Not only does the stock carry a five-star rating on CAPS, but investors have awarded it a tangible book value multiple above most of the group.
I have given Berkshire's stock a thumbs-up in my own CAPS portfolio, but I'm far from alone. CAPS All-Star addedupon recently joined the bullish chorus and said: "Every ceo of every company within berkshire is capable, shareholder friendly, humble, and not overpaid. price is down so buying opportunity is at hand."
So, what do you think? Is this an idea worth pursuing, or is Berkshire an overrated stock? Head over to CAPS and let the 135,000-member community know what you think.
Further Foolishness:
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