Warren Buffett doesn't need anyone to advise him on what to do. But with Berkshire Hathaway's (BRK.A 1.53%) (BRK.B 1.31%) cash stockpile now at nearly $277 billion, it's hard not to speculate about what the legendary investor might do with so much money.
If I managed Berkshire's investment portfolio, I know what I'd do with part of that massive treasure chest. Here are two perfect companies for Buffett to buy next.
An obvious choice
It wouldn't surprise me in the least if Buffett is already seriously considering increasing Berkshire's stake in Chubb (CB 0.76%). A full acquisition of the insurance company would make sense, in my view.
Buffett began scooping up shares of Chubb last year. However, at the time, outsiders only knew that Berkshire was investing in a mystery stock. After months of buying, Berkshiren now owns a 6.4% stake in Chubb worth nearly $7 billion.
Chubb is such a great match for Berkshire that it's a wonder Buffett hasn't bought it in the past. The company sells property and casualty, personal accident, supplemental health, and life insurance in 54 countries and territories. It also offers reinsurance.
Berkshire's insurance businesses already include GEICO (which primarily markets auto, home, and life insurance), Guard (which primarily offers commercial and excess and surplus insurance), and General Re (a top reinsurer). Chubb's products largely complement Berkshire's insurance offerings.
Chubb is strong financially. It's consistently profitable. And its shares are valued attractively with a forward price-to-earnings ratio of around 12.5.
Another under-the-radar candidate
I think Chubb just might be Buffett's next "whale." However, I believe another company could be a great "guppy" for him to add to Berkshire's long list of subsidiaries.
Kinsale Capital Group (KNSL 0.67%) focuses on a niche market -- excess and surplus (E&S) insurance for small businesses. Sure, Berkshire is already in the E&S market. However, acquiring Kinsale would give it the cream of the crop, in my view.
The average combined ratio between 2021 and 2023 among the top specialty insurers was 92.8%. Kinsale's combined ratio during this period was 77.2%. Why is Kinsale so much more profitable than its peers? Two factors especially stand out.
First, the company's underwriting process is top-notch. Unlike many of its rivals, Kinsale doesn't delegate underwriting to agents, brokers, or other third parties. Second, the company's technology platform increases its operational efficiency.
Granted, Buffett might be somewhat leery of Kinsale's valuation with shares trading above 31 times forward earnings. However, Berkshire's portfolio includes even more expensive stocks (I'm especially looking at you, Nu and Snowflake.)
I think Kinsale deserves a premium valuation. The stock's compounded annual growth rate of 51% between 2016 and 2023 is nearly four times greater than the gains for the S&P 500 during the period. So far in 2024, Kinsale has more than tripled the S&P's returns.
Plenty of cash left over
Berkshire Hathaway could easily afford to buy Chubb and Kinsale. Chubb's market cap hovers around $108 billion, while Kinsale's market cap stands below $11 billion. Buffett could acquire both insurers and still have over $150 billion in cash even if he paid a good bit more than what they're currently worth.
Will Buffett use some of Berkshire's massive cash stockpile to buy a portion or all of these companies? I don't know. Even if he doesn't, both Chubb and Kinsale are great picks for long-term investors who don't have quite as much cash as Buffett does.
