BRK.B

Here's the Stock Warren Buffett Spent the Last 9 Months Secretly Accumulating a $6.9 Billion Stake In

Warren Buffett hasn't seen a lot to like in the stock market recently.

With stocks climbing higher for the last 18 months, it's become harder and harder to find a great company trading at a fair price. The challenge is even more difficult for Buffett, who manages a portfolio of $377 billion in equities and $189 billion in cash for Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B).

The current environment is reflected in Buffett's portfolio management decisions. He's sold more stock than he bought in each of the last six quarters. But there's one stock that caught his eye in the third quarter last year, and he's been accumulating shares in each of the last three quarters.

As of the end of 2023, he'd purchased about $5 billion worth of it. The only problem is, we had no way of knowing exactly what stock Buffett found so appealing, thanks to a special disclosure exemption from the SEC.

The wraps are finally off, with Berkshire's most recent 13-F filing disclosing all the conglomerate's equity positions as of the end of the first quarter. Here's the mystery stock Buffett's been buying.

A closeup of Warren Buffett.

Image source: The Motley Fool.

A stock that's right in Buffett's wheelhouse

The stock on Buffett's buy list in each of the last three quarters has been commercial property and casualty insurance company Chubb (NYSE: CB).

Buffett acquired nearly 26 million shares of the company over the past three quarters, a stake that's now worth about $6.9 billion. That's good enough to make it a top-10 holding in Berkshire's portfolio.

Chubb fits perfectly into Buffett's circle of competence. The Oracle of Omaha's been investing in insurance since the 1960s. Shortly after taking control of Berkshire Hathaway, a mere textile company, in 1965, Buffett added an insurance business to the conglomerate. Insurance is now at the core of Berkshire Hathaway's operations, providing valuable float from premiums for Buffett to invest.

With more than 60 years in the insurance business, it's safe to say Buffett knows when an insurance stock is attractive. His in-depth knowledge of the industry gives him an advantage in spotting undervalued insurers. Chubb exhibits several attractive qualities as an insurer, but its share price may not have fully reflected the quality of the business.

Many insurance companies did well in 2023 thanks to higher prices and interest rates. Chubb was no exception. Its full-year net income per share climbed 75.9% thanks to a 13.5% increase in net premiums and written and improved underwriting margins. The strong results continued into the first quarter, with a 14.1% increase in net premiums written, likely due to higher pricing.

Chubb's investments are also doing well. The company holds many long-dated fixed-income assets like mortgage-backed securities and corporate bonds in its investment portfolio. That resulted in poor relative returns as the Federal Reserve ramped up interest rates, but it's now producing strong growth in investment income every quarter. Investment income climbed 25.7% in the first quarter.

Chubb's core operations look very strong, and the investment picture is shaping up well. It's no surprise Buffett was interested in the stock.

Should investors follow Buffett's lead?

Now that Berkshire Hathaway has disclosed that Chubb is the stock it's been buying up for the last three quarters, Buffett may be done buying more shares, at least for now. The stock has climbed from around $200 per share when Buffett first bought it in the third quarter last year to a new all-time high of $270 following Berkshire's disclosure.

Still, the stock is fairly attractive. Shares trade for a forward P/E of just 11.6x, putting it firmly in the value camp Buffett loves. Its price-to-book value of 1.7x is higher than its historical average, but also a fair price to pay considering its improving investments and strong underwriting operations.

Chubb remains a great Buffett investment, even at this price. It ticks a lot of boxes. It has the potential for Berkshire to keep adding to its investment, as it currently owns about 6.4% of shares outstanding. It's a leader in its industry with great management. And it has a lower downside risk than the average company, thanks to the stock's current valuation and management's handling of its balance sheet.

Investors looking for a solid value stock to add to their portfolio from the financial sector may want to take a closer look at Chubb.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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