Is Markel Corporation (MKL) The Next Berkshire Hathaway Inc. (BRK.B)?

Markel has a Buffett too

Berkshire Hathaway Inc. (NYSE:BRK.B)’s success is not due to its ability to profitably underwrite insurance policies; most of its success is due to the shrewd capital allocation of Warren Buffett.

Markel Corporation (NYSE:MKL) is no different. Its insurance profit would be worthless if the company did not invest the float well. Luckily, Markel has its own Buffett in the form of Tom Gayner. Gayner has been Chief Investment Officer of Markel since 1990 and has compound annual returns of nearly 11%.

In addition, Gayner began acquiring non-insurance businesses in 2005. Although Markel is still overwhelmingly an insurance operation, it is not difficult to envision the company’s future given its growing similarities to Berkshire.

Is it a buy?

Markel’s market capitalization is only $5 billion, whereas Berkshire Hathaway Inc. (NYSE:BRK.B)’s is over $260 billion. While Markel will likely never match Berkshire Hathaway Inc. (NYSE:BRK.B)’s size, it clearly has room to grow.

As a result of its shrewd underwriting, intelligent capital allocation, and strong growth prospects, Markel Corporation (NYSE:MKL) deserves to trade at 1.5x book value — or about $650 per share. At a recent price of $515, the stock is available at about 80% of its intrinsic value — a good price for long-term investors to jump aboard.

The article Is This Company the Next Berkshire? originally appeared on Fool.com and is written by Ted Cooper.

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