We came across a bullish thesis on Markel Group Inc (MKL) on ValueInvestorsClub by goirish. In this article we will summarize the bulls’ thesis on MKL. Markel Group shares were trading at $1,564 when this thesis was published, vs. closing price of $1,570.59 on Sep 20.
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Markel Group Inc. (NYSE:MKL) is a holding company, with insurance as its core business. The company has its insurance operations in the US, Bermuda, Asia, and Europe. It offers a diverse range of commercial property and casualty solutions. The company works in three main areas: insurance, investments, and ventures.
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The insurance business has been the backbone of Markel’s success. In 17 of the past 20 years, the company kept its GAAP combined ratio under 100%, which shows its strong underwriting discipline. Markel has faced recent hurdles in long-tail areas like general and professional liability. These issues got worse due to trends in litigation finance and social inflation. To tackle these problems, Markel has taken action. It stopped working in troublesome areas and increased its reserves.
Markel’s investment portfolio stands out as a key strength, with equities making up 70% of its book value distinguishing it from most insurance companies. This strategy allows Markel to build up returns over time, despite exposing the company to more ups and downs. Tom Gayner, who manages investments, is a well-known value investor. His long-term approach has an impact on generating significant unrealized gains as time passes.
Also, Markel’s Ventures has seen big growth and has become a crucial part of how the company creates value. It earns high returns on capital and supports the main insurance business. This mix of different businesses gives stability when markets go up and down. While Markel faces some challenges right now, its history of success, changes in strategy, and variety of operations make it an attractive investment for the long haul. Markel has a lot of room to increase in value. Its present price shows that it may rise by 54%, based on an estimated fair value of $2,413 per share. MKL’s stock price is around 12 times its profits. This forecasts $900-$1,000 million in investment income, $500 million from venture capital, and $150 million from insurance-linked securities firms (ILS).
MKL is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 42 hedge fund portfolios held MKL at the end of the second quarter which was 26 in the previous quarter. While we acknowledge the potential of MKL 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 as promising as MKL 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 at Insider Monkey.