Buffett's Secret Stock Pick Finally Revealed

Dear Bottom Line Investor,

Today, on "Bargain Bin Wednesday," we’re highlighting Chubb Ltd. (NYSE: CB), an exceptional value investment that has recently caught the eye of none other than Warren Buffett's Berkshire Hathaway.

Warren Buffett’s Berkshire Hathaway has revealed its confidential stock purchase: nearly 26 million shares of Zurich-based Chubb, worth $6.7 billion.

This acquisition makes Chubb Berkshire’s ninth-largest holding as of March 2024. The shares of Chubb surged nearly 7% after the disclosure, and the stock has gained about 12% year to date.

Chubb's balance sheet is the first thing we noticed, with total assets reaching $228.9 billion by the end of 2023. Fourth-quarter net premiums written increased by 9.2% year-over-year, with significant growth across North America, Asia, Europe, and Latin America. Chubb’s core earnings exceeded expectations, in part due to lower-than-expected loss payouts.

Strategic Acquisitions and Global Reach

Chubb has strategically expanded its footprint through acquisitions, particularly in the Asia-Pacific region. The purchase of Cigna’s accident/health and life businesses in 2022 has diversified Chubb's income streams, providing steady earnings that complement its variable property/casualty profits. Moreover, Chubb's increased stake in Huatai Group in China has solidified its presence in the Chinese financial services market.

Market Resilience and Pricing Power

Chubb's ability to raise premiums has been a significant driver of growth. Approximately 60% of recent premium increases stem from higher rates, with the remaining 40% from rising insured exposures. Moderate inflation levels have benefited Chubb as the company stays ahead of its cost curve. Additionally, higher interest rates have boosted income from Chubb’s conservatively managed bond portfolio.

Chubb is trading at about 10.5 times earnings, with a price-to-book value ratio of 1.6%. The insurer offers appealing risk-adjusted annual total return prospects, with projected earnings per share expected to grow from $19.80 in 2023 to $33.25 by 2027-2029.

The company’s strong financial strength, stable dividend yield, and growth potential make it an attractive investment.

Chubb represents a high-quality stock trading below its intrinsic value, with a bright future supported by strategic growth initiatives and a strong market position. As we scour the market's bargain bin this Wednesday, Chubb stands out not only for its current discount but also for its enduring potential in the insurance industry.

Happy investing,

Bottom Line Investing

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