Holding shares of Berkshire Hathaway Inc. (BRK.B - Free Report) render dynamism to a shareholder’s portfolio. It gives a feel of investing in mutual funds apart from rewarding investors with higher returns at the same time. But above all, the company has Warren Buffett at its helm, creating tremendous value for shareholders over the last 51 years with his unique skills.
Berkshire Hathaway is a conglomerate with more than 90 subsidiaries engaging in businesses ranging from ice-cream to insurance. Nonetheless, its property and casualty insurance business generates maximum return on equity. However, the company faces the risk of volatile underwriting results due to exposure to catastrophes. Nonetheless, its inorganic growth story remains impressive with addition of heavyweight names in its portfolio.
The company’s stakes in Apple Inc. (AAPL - Free Report) increases fourfold. It also raised its stakes in the four biggest U.S. airlines, plus acquired Precision Castparts and made an investment in The Kraft Heinz Co (KHC - Free Report) , Visa Inc. (V - Free Report) and The Bank of New York Mellon Corporation (BK - Free Report) , among others.
Shares of Berkshire Hathaway have gained 5.5% quarter to date, edging past the industry’s growth of 3.8%. It has also outpaced the S&P 500’s 0.74% gain.
However, the stock presently carries a Zacks Rank #4 (Sell). Also, estimates witnessed downward revisions over the last 60 days. The Zacks Consensus Estimate for 2017 moved south by 5.5% and for 2018, by 2.6%. In fact, Berkshire Hathaway failed to beat estimates in two of the last four quarters and the average surprise was a negative 6.91%. Also its VGM Score is D. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all these three factors.
Are There Stocks Worth Adding to Portfolio?
Berkshire Hathaway, the name says it all. Yet there are other attractive stocks in the property & casualty insurance industry that may not be as big a name as Berkshire Hathaway but promise greater returns.
With the Federal Reserve already hiking rates twice this year (intended for one more), the property and casualty insurers stand to benefit from the improving rate environment. This is because investment income a major component of an insurer’s top line.
Improving economy indicating more disposable income and better consumer sentiment should support more policy writings, thus driving the premiums higher.
Though increasing catastrophes will induce volatility in underwriting results, insurers have braced themselves with prudent underwriting practices to counter the anticipated loss.
Additionally, influx of capital, building of reserves and containment of underwriting expenses also pave the way for growth prospects.
Choosing the Stocks
Apart from Berkshire Hathaway, we have zeroed in on two other stocks with potential to enhance one’s portfolio. We refine our search using the VGM Score, price performance quarter to date, a favorable Zacks Rank, an attractive price-to-book (P/B) and northbound estimate revisions. VGM Score of A or B coupled with Buy rated stocks are best bets.
Illinois-based Atlas Financial Holdings, Inc. (AFH - Free Report) engages in underwriting commercial automobile insurance policies in the United States. The company has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The P/B ratio is 1.41. The company delivered positive surprises in two of the last four quarters with an average beat of 57.94%. Atlas Financial is witnessing upward estimate revisions — up 4.5% for 2017 and 2.6% for 2018, respectively, — over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Atlas Financial have rallied 12.8% quarter to date, substantially outperforming the industry’s growth and Berkshire Hathaway’s gain.
California-based First American Financial Corporation (FAF - Free Report) provides financial services. The company has a Zacks Rank #2 (Buy) and a VGM Score of A. The P/B ratio is 1.67. The company delivered positive surprises in the last four quarters with an average beat of 12.64%. First American Financial is witnessing upward estimate revisions — up 9.2% for 2017 and 6.4% for 2018, respectively, — over the last 60 days. Its expected long term earnings growth is pegged at 13%, better than the industry average of 10.4%.
Shares of First American Financial have gained 8.3% quarter to date, significantly outperforming the industry’s growth and Berkshire Hathaway’s gain.
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