We're introducing a new segment in our Industry Focus: Financials podcast called "One to Watch." In this inaugural edition, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss why they think Ellie Mae (NYSE:ELLI) and Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) could be worth a look now.
A full transcript follows the video.
This video was recorded on Sept. 17, 2018.
Jason Moser: Let's introduce one feature here. We want to talk about One to Watch. This is an idea that I got, we do this a lot on Motley Fool Money. At the end of every Motley Fool Money, we offer a stock on a radar. I thought it would be fun to do something kind of like that. We're going to give our listeners, every week, what we're calling One to Watch -- a company in the financials space that we've got our eye on for one reason or another. It may be bullish, it may be bearish. You get to tell me what you're thinking there. Hopefully, our listeners will be able to benefit from that, as well. Matt, let's go ahead and start with you. What's one to watch this week?
Matt Frankel: In the spirit of the hurricane discussion, I'm looking at Berkshire Hathaway this week. Berkshire Hathaway's core business is insurance. They have a ton of different businesses. They have a lot of reinsurance businesses. Their reinsurance business got clobbered after last year's hurricane season. I think they had a total of about $3 billion in losses. Well, the estimates for the damage caused by Hurricane Florence are looking like it's not going to be as bad as we expected. Initial estimates said that the storm could cause up to $170 billion in damage if it hit the correct way and stayed strong and all that. Now, the latest estimates are calling for about $18 billion of damage. That's a big difference. That's a lot less that reinsurers are going to have to pay out. Plus, you can't really go wrong with Berkshire, especially their new buyback program. Warren Buffett's essentially telling you, by buying back the stock, that it's inherently worth more than its trading for. So, that's one that's really on my radar, especially as the storm doesn't really look like the damage is going to be as bad as originally thought.
Moser: I like it. That's a good one. It's really hard to bet against Buffett and his crew. We'll give you a bonus here: Markel is another company that I think of when we talk about reinsurance. Great specially insurer, but a meaningful reinsurance business, as well. That's one that really is built in that Berkshire mold.
I'm going to go a little bit of a different direction here. I'm watching this week a company called Ellie Mae, ticker ELLI. It's a mortgage software provider with a very large and growing presence in its Encompass platform for lenders. They sign up individual lenders, little small boutique lenders. They're even getting big banks. TD Ameritrade, even, is a customer of Ellie Mae's now. Fascinating business. They make their money from not only selling the subscriptions to using their software, but they also make a little bit on every transaction. I think that's really, for me, when the question is coming up here. For a very long time, Ellie Mae has benefited from this tremendous refinance boom that we've witnessed with all of these low interest rates. Now, as we see interest rates start creeping back up a little bit at a time here, I'm starting to wonder if this is going to be something that plays out on their business.
They are very clear in earnings calls that refinancing is slowing down. They believe that they're going to make up for that on the purchase side. But until they actually show that, we have to at least make some assumptions there. It's a good business. It's not a cheap stock by any means. But it's one that's really built a strong presence in the space in a short amount of time here.
I own shares of Ellie Mae myself. I tell you, I like the business a lot. I'm just a little bit curious as to how they're going to be affected by this slowing down refinance volume.