Warren Buffett Owns This Big Data Stock: Should You?

Verisk Analytics (VRSK), United Healthcare (UNH), and McKesson (MKC) are facing off with big data crunching solutions that could re-imagine healthcare markets.

Apr 12, 2014 at 9:00AM

Verisk Analytics (NASDAQ:VRSK) isn't a sexy stock, and it doesn't attract a lot of media hype, but it's a steadily growing big data company Warren Buffett has owned for years.

As the country exited the financial crisis In 2009, Buffett and Verisk's other insurance company owners, including Hartford Insurance and AIG, decided to spin off Verisk to raise money to support their struggling balance sheets.

But Buffett's Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) was the only pre-IPO owner not to sell into Verisk's IPO, and Buffett still owns 1.5 million Verisk shares as of December. So, let's take a look at why Mr. Buffett remains a fan of this data crunching company. 

VRSK Chart

VRSK data by YCharts.

Born from insurers
In the insurance business, it's all about identifying and pricing risk. The better able you are to figure out whether a claim will be filed, the better able you are to price insurance for a profit. Verisk's data mining solutions do that every day for all 100 of the largest U.S. property & casualty insurers. Those 100 insurers make up 85% of the $540 billion in P&C premiums written last year.

Verisk's roots stretch back to 1971, when a consortium of insurers decided they could get better answers cheaper by combining their data analysis efforts. Over the years, savvy acquisitions and product development expanded Verisk's product offering to include underwriting, claims management, compliance, and portfolio analysis, too. The combination of more services and a top-shelf customer base has allowed Verisk's insurance business to grow by a compounded 9% annually over the past decade. 


Source: Investor Presentation.

Expanding into health care
While the majority of Verisk's revenue continues to come from the insurance market, Verisk's abilitiy to compile, crunch, and conveniently report data is resonating with other industries, too.

Increasingly, practices and processes that were formerly driven by empirical -- and highly subjective -- estimates are migrating to quantitative analysis. As a result, Verisk's products and services appeal to financial services companies like credit card issuers as well as health care companies, including insurers and providers.

Verisk's push into health care has been particularly impressive. Many health care participants face business challenges similar to the P&C market, particularly health care payers like insurance companies and self-insured Fortune 500 firms.

Despite a short history of serving the health care industry, 232 health care payers have already signed on with Verisk, including 9 of the top 10 insurance plans.

Another 26 health care providers, including physician networks, as well as 61 employers, have inked deals with Verisk to help them with claims, risk modeling, Medicare Advantage risk adjustment, and quality auditing.

That demand has sparked Verisk's health care sales, driving them up from just $50 million in 2009 to more than $270 million in 2013. That's impressive, but it only hints at the larger market potential, which Verisk estimates exceeds $4 billion annually.

Of course, Verisk isn't the only one trying to work with health care companies. Verisk competes directly with United Healthcare's (NYSE:UNH) OptumInsight, a company that offers a suite of analytic and consulting services to health care players.

United's position as the largest U.S. health insurance company has given OptumInsight immediate cache, helping OptumInsight build a backlog north of $5.5 billion exiting 2013. United expects $2.7 billion of OptumInsight's backlog will be realized this year, of which roughly $1 billion is tied to other United companies. Even considering the inter-business sales, OptumInsight is still arguably Verisk's stiffest competitor in the health care sector. 

McKesson (NYSE:MCK)Technology Group is another Verisk competitor. McKesson's client list includes more than 50% of all health systems and 76% of health systems with more than 200 beds, giving McKesson's Business Performance Services business opportunities to cross-sell consulting services and products like McKesson Analytics Advisor. Overall, McKesson's Technology Group posted sales of $738 million in the fourth quarter, nearly $600 million of which came from services.

Fool-worthy final thoughts
Verisk's Buffet-appeal isn't limited to the competitive advantage it maintains thanks to Verisk's large and growing datasets. It's also tied to the businesses' highly attractive -- and profit-friendly -- ability to build a product once, and sell it many times.

Whether Verisk can remain differentiated enough to outpace United Healthcare's Optum and McKesson is a question still to be answered. All three companies are increasingly going to bang into one another in board rooms as the industry grapples with improving care and reducing costs post reform.

However, since all industries are eager to boost profitability, it would seem Verisk may find it has long-term opportunity that stretches far beyond where it sits currently.

And that rings true with the greatest thing Warren Buffett ever said
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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends Berkshire Hathaway, McKesson, and UnitedHealth Group. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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