We recently published a list of UBS’ Top Quant Stocks In AI, IT, Healthcare & Other Sectors: Top 33 Stocks In All Sectors. In this article, we are going to take a look at where W. R. Berkley Corporation (NYSE:WRB) stands against other UBS’ top quant stocks in AI, IT, healthcare & other sectors.

With the third quarter of the 2024 earnings season underway, Wall Street is dealing with a changing stock market environment. The Federal Reserve has started its interest rate reduction cycle and market watchers are on the lookout for labor market and inflationary indicators to determine whether the Fed will be able to meet its goal of reducing interest rates by an additional 50 basis points by the end of this year.

Simultaneously, the shifting economic climate is also creating changes in the investment environment. High interest rates traditionally do not mean well for certain stock market sectors barring exceptional circumstances. Some sectors that don’t perform well in a high-rate environment include real estate, healthcare, and technology.

For two of these, this has been the case in the 2022 – 2024 Federal Reserve interest rate hiking cycle as well. Starting from real estate, the flagship S&P index’s real estate sector’s annualized three-year return is currently -2.66%. From its peak of 324.75 in December 2021, the index has lost 48.2 points or 14.8%. Similarly, the high-end healthcare and biotechnology sector does not fare well during high interest rates either. Since 2021’s close, the S&P’s pharmaceutical stock index is down by -0.84% while the S&P’s biotechnology index has lost a sizable 12.61%.

This brings us to our third stock market sector, a.k.a, technology. Technology, as you’re likely aware, has seen a lot of investor interest due to the surge in artificial intelligence. Looking at the performance of the S&P’s technology stock index, its performance also mirrors real estate and healthcare stocks before the frenzy around artificial intelligence started. Between 2021’s close and the market’s bottom in October 2022, the index had lost 33%. During the same time period, the real estate, pharmaceutical, and biotechnology stock indexes had lost 34.8%, 12.2%, and 30.5%, respectively. However, market optimism surrounding artificial intelligence has created a clear bifurcation in performance.

As an example, while real estate stocks have gained 29% since the October 2022 bottom and biotechnology stocks have added 25% in value, information technology stocks are up by a whopping 115%. This shows that tech stocks have delivered 4x the returns of both real estate and biotechnology. Driving this is artificial intelligence, with the shares of the world’s premier AI GPU designer up by 690% since OpenAI publicly released ChatGPT.

Looking at these shifts, the next question to ask is which stock market sectors might benefit from the evolving environment moving forward. On this front, investment bank UBS has some insights. In its Equity Compass Report issued in mid-October, the bank identifies key themes and trends for US and global stock markets. Within global and US stock market sectors, the bank has rated only one sector as ‘Most Attractive’. Unsurprisingly, this is the US technology sector which is currently experiencing a sustained surge of investor optimism courtesy of artificial intelligence.

The bank shares several data points to justify its optimism in the US technology sector, and more specifically, artificial intelligence companies. Citing data from the Hugging Face repository, a collection of software development tools, it reveals “an average 200% y/y rise for new AI models and model downloads combined so far in 2024.” UBS is also optimistic about the growing adoption of artificial intelligence in the US business world. AI adoption is key since big technology firms that have invested billions of dollars in AI need it to generate returns on their investment.

As per UBS, data from the Census Bureau’s Business Trends and Outlook (BTOS) survey released in September 2024 shows that AI adoption across the 1.2 million firms tracked was picking up the pace. “In the survey, 5.9% of companies reported using AI as of 3Q24, up from 3.7% in 3Q23,” outlined the bank in its report. Not only did 5.9% of the firms adopt AI, but the survey’s outlook for the next six months revealed that AI adoption across the surveyed population could rise by 2.8 percentage points to sit at 8.7%. Commenting on the implications of the higher adoption, UBS stated that “increasing future adoption will increase visibility on AI monetization, which is consistent with recent comments from leading cloud platforms.” The firms slated to benefit the most from this monetization are those ” with strong footprints in existing customer bases,” believes the bank.

These statements necessitate asking the question of which industries are slated to benefit the most from AI adoption. Fortunately for us, UBS also shares data for the industries currently leading the way with AI adoption and those that could grow adoption in the future. Right now, the information technology and personal services sectors are leading with AI adoption since as of September 2024, their respective adoption percentages were 19.1% and 14.7%. For the next six months, while the same industries are expected to lead the pack in overall AI adoption through their 23% and 19.8% percentages, others are expected to make higher percentage point gains. Two industries that stand out in the report are educational services and the finance and insurance industries.

As per the report, the former is expected to increase its AI adoption by 5.6 percentage points to 18.7% over the next six months from the current value of 13.1%. For the finance and insurance sector, it is expected to mark a 6.2 percentage point jump to 13.4% from the existing AI adoption of 7.2%. Of course, while AI is by far the most popular sector in the market right now, UBS also shares other attractive areas. It outlines that the market “also offers exposure to secular growth in longevity through various US medical device companies. Many US companies are also playing leading roles in the energy transition via electric vehicles, renewables, and energy efficiency.”

Our Methodology

To make our list of UBS stocks with improving quantitative indicators, we chose the firm’s top stocks that are seeing improvements in EPS growth, P/E ratio, and other indicators. Stocks within each sector were ranked by the number of hedge funds that had bought the shares during Q2 2024. The sectors themselves were ranked by the cumulative number of funds invested in the firms.

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).

W. R. Berkley Corporation (NYSE:WRB)

Number of Hedge Fund Investors In Q2 2024: 31

Sector: Financials

W. R. Berkley Corporation (NYSE:WRB) is one of the biggest insurance underwriters in America. It is a well-diversified insurance company that benefits from sizable premium contributions from casualty, short tail, and auto premiums. As of H1 2024, these three segments accounted for 41%, 20%, and 14.6% of W. R. Berkley Corporation (NYSE:WRB)’s net premiums, respectively. This makes it clear that the firm depends to a large extent on the property and casualty market for its financial well-being. Consequently, W. R. Berkley Corporation (NYSE:WRB)’s future depends on the firm’s ability to navigate the current climate change-driven disruptions that the casualty insurance market is facing. The firm took a sizable $98 million hit from Hurricane Helene in its Q3, and after it released the results, W. R. Berkley Corporation (NYSE:WRB)’s shares dropped by 4%. On the auto insurance front, the firm focuses exclusively on the commercial market which makes it vulnerable to economic slowdowns and social inflation but also carries the promise of sizable premiums through insuring large fleets.

During the Q3 2024 earnings call, W. R. Berkley Corporation (NYSE:WRB)’s management shared details of climate catastrophes on its business:

“During the quarter there were four hurricanes that made landfall, with Helene being the most destructive across several states and continuing SCS activity that contributed modestly to the total amount of CAT losses. Our net premiums written grew above $3 billion for the second consecutive quarter and continues to benefit our record net premiums earned, which increased 10.8% over the prior year. Current accident year underwriting income, excluding CATs, increased 13.4% to $362 million pre-tax, adjusted for CAT losses of $98 million and prior year favorable development of $1 million. Our current accident year loss ratio, ex-CAT, improved quarter-over-quarter by [1.5] (ph) to 59.1% driven by business mix. We continue to invest in the business to drive efficiencies and better experience for our customers combined with new startup operating units that we’ve announced before.

The combination of these items along with the changes in business mix and reinsurance structures have contributed to the increase in our expense ratio by 20 basis points to 28.5%. As previously communicated, we continue to believe that our expense ratio should remain comfortably below 30%.”

Overall, WRB ranks 21st on our list of UBS’ top quant stocks in AI, IT, healthcare & other sectors. While we acknowledge the potential of WRB 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 time frame. If you are looking for an AI stock that is more promising than WRB 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.