Each week, Industry Focus: Financials host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss a stock that has made its way onto their radar. In this installment, Moser discusses why recent Berkshire Hathaway (BRK.A 2.73%) (BRK.B 2.25%) purchase Travelers Insurance (TRV 2.13%) could be worth a look.
And, instead of buying all of the bank stocks Warren Buffett and his stock pickers just did, Frankel thinks interested investors should take a look at the Financial Select Sector SPDR ETF (XLF 0.50%).
A full transcript follows the video.
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This video was recorded on Nov. 19, 2018.
Jason Moser: Let's go ahead and wrap this up with our One to Watch this week. Matt, you have an interesting take for listeners, based on what we've been talking about today. What is your One to Watch this week?
Matt Frankel: I'm a big fan of Buffett's banking investments. I've been talking about the value in banks like Bank of America and Goldman Sachs for some time now. Other people on the show have talked about JPMorgan as a big value play, Wells Fargo. But it's not practical for most people to own ten different bank stocks. so, I'm watching the financial sector SPDR ETF, ticker XLF. It's a great way to invest in a bunch of bank stocks and Berkshire itself. Don't forget, Berkshire at its core is a financial sector stock, and is actually the ETF's top holding. Other than that, it owns a lot of JP Morgan, Bank of America, Wells Fargo. Pretty much the Buffett banking portfolio, you can buy all in one stock.
Moser: Good deal.
Frankel: And it's a very low-cost index fund. It's a great way, if people feel like I do, that the banking sector as a whole has a lot of potential and is very undervalued right now.
Moser: What's the ticker for that fund?
Frankel: It's XLF.
Moser: I like that. Like you, I'm going to honor Buffett and Berkshire here. I'm going to go with Travelers, ticker TRV, in honor of Berkshire adding to Travelers during the quarter. Insurance is one of those things. Everybody needs it. You don't know when it's going to come in handy, but that's the whole point, really. Travelers is a very well-known brand within the insurance industry. Net premiums for the most recent quarter were up 6%, which is encouraging. They continue to maintain attractive combined ratios. The underlying combined ratio this year chalked up at 93%. That means they're writing good business, and I think you can assume that they will continue to do that. The philosophy with Travelers -- certainly when I was there, and it doesn't appear to have changed -- they want to pay what they owe and move on, try to eliminate as much of those frictional costs that can string out business for a long period of time in the form of subrogation and whatnot.
I think it's also really neat to see Travelers saddling up with Amazon here, coming up with some new home insurance products. They're using some of that technology that Amazon's coming out with, rolling that into its Travelers insurance products, and giving homeowners a new way to view purchasing home insurance, which is, of course, a requirement if you're going to own your home.
So, for me, Travelers. It seems like it's never been a bad time to own the stock. And apparently, Uncle Warren agrees.