We recently compiled a list titled Buffett Stock Portfolio: Top 10 Stock Picks for 2024. In this article, we will look at where Chubb Limited (NYSE:CB) ranks among the top 10 stocks in Buffet’s portfolio.
Warren Buffet is one of the most accomplished investors in the history of Wall Street. According to Bloomberg’s Billionaire Index 2024, the Oracle of Omaha has a net worth of $143 billion, making him the ninth richest person in the world. His wealth would have been much more had he not decided to donate most of his vast fortune to charities. Since 2006, Buffet has donated over $55 billion to various charitable organizations, with a majority of the gifts going to the Bill & Melinda Gates Foundation.
Buffet rose to prominence in 1965, after transitioning his investment firm into a conglomerate that held stakes in companies belonging to a broad range of industries. Between then and 2023, his firm earned average annual returns of 19.8%, outperforming most stock indices that delivered returns around the 10 percent mark during this period. However, this year, Buffet seems to be in a defensive mode and is currently in the news for his sell-off spree, significantly reducing his investments in several notable companies.
There have been mixed opinions about Buffet hunkering down on stocks. Edward Jones analyst, Jim Shanahan, said that the actions make him ‘concerned’ about Buffet’s outlook for the stock market and the American economy. In contrast, Daniel Ives, a Wedbush analyst, is less worried and believes that despite the selling spree, Berkshire still holds the top positions in those stocks by large margins, which should not be viewed as a ‘smoke signal for bad news ahead’.
So what will Warren Buffet do with all that cash? Andrew Bary, the associate editor at Barron’s, recently stated that the billionaire has been on the look for a major acquisition for some while now, which has so far proven elusive. He believes the Berkshire CEO may just hold the cash for some while, earn interest on Treasury Bills, and wait for potential opportunities to grab in the stock market.
Another factor that has likely contributed to Warren Buffet dumping stake in some of his top stocks is the speculation around the increase in capital gains tax. The debate on the tax rate has been on for some time now and has even become a talking point in the run-up to the presidential elections. Vice President, Kamala Harris, during a speech in New Hampshire this month, proposed to raise the long-term capital gains tax for wealthy individuals to 28%.
The current tax rate is 21% when a gain is realized. Massive gains over the long term result in a large tax. Warren Buffet invested in stocks he is currently selling a long time ago, and hence, is sitting on handsome gains. The rationale behind selling these stocks could be to capitalize on the gains as much as possible on the current low tax rate, instead of paying hefty taxes later if the rate were to be increased.
Methodology
We scanned Warren Buffet’s portfolio, as of June 30, 2024, and picked the top 10 stocks according to their stake value. The figures were sourced from the Insider Monkey Database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Chubb Limited (NYSE:CB)
Stake Value as of Q2 2024: $6,895,777,623
Chubb Limited (NYSE:CB) is a world leader in insurance products, headquartered in Zurich, Switzerland. It operates in 54 countries and territories, providing coverage for property and casualty, life insurance, reinsurance, and accident and health to a wide group of clients. It is one of the top picks from the Buffet stock portfolio, with the hedge fund having investments valued at around $6.9 billion in the company, as of Q2 2024.
Chubb’s diverse insurance offerings on both personal and commercial lines give it a competitive advantage by mitigating risk and providing the opportunity to grow across sectors. This was reflected in the company’s recent financial performance in Q2 FY24, during which it generated a core operating income of $2.2 billion, resulting in earnings per share of $5.38, representing a 9.3% increase. This also raised the company’s year-to-date operating income to $4.4 billion.
The strong show during the quarter was fueled by premium revenue growth across segments and regions, excellent underwriting results, and a 25% surge in investment income. Property and casualty (P&C) underwriting income stood at $1.4 billion for the quarter, with catastrophe losses totaling $580 million. Investment income reached a record $1.5 billion, up 26% year-over-year.
Chubb Limited (NYSE:CB)’s balance sheet position remains solid and has been strengthened by the company’s investment and underwriting results during the first half of the year, which brought in substantial capital and cash flow. Chubb’s book value reached $61 billion at the end of the second quarter, with operating cash flow for the year at a record $7.2 billion.
The company expects P&C revenue growth to continue driving operating incomes in the quarters ahead this fiscal year. Chubb’s share price has spiked 8% since the announcement of Q2 results in July. The overall sentiment around the stock remains bullish. Street analysts also have a consensus on the stock’s Buy rating.
Overall, CB ranks 9th among the Buffett Stock Portfolio: Top 10 Stock Picks for 2024. While we acknowledge the potential of CB as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.