Bank of Montreal analysts have recently identified a list of 28 stocks they consider the market’s highest-quality businesses. Despite maintaining a generally optimistic outlook on U.S. stocks, the bank acknowledges that investors may need to navigate higher levels of market volatility in the near term. To protect their portfolios without sacrificing potential returns, these analysts recommend investing in high-quality companies.
Among the stocks highlighted by the bank is one recently added to Warren Buffett’s portfolio, making it a top consideration for investors.
A Buffett Stock Analysts Can’t Ignore
In creating their “high-quality stock” screen, Bank of Montreal analysts examined various factors, including debt ratings, earnings per share volatility, returns on equity, and liquidity metrics. Several stocks associated with Warren Buffett, such as Visa and Coca-Cola, met their criteria. However, one recent addition to the Berkshire Hathaway portfolio stood out: Chubb (NYSE: CB), a major player in the property and insurance sector.
Chubb has caught the attention of more than just Bank of Montreal analysts. Over a dozen Wall Street analysts currently have a “buy” or “overweight” rating on the stock, while only two hold a “sell” or “underweight” rating.
What Makes Chubb Stand Out?
There are several reasons why Chubb is highly regarded, with its resilience in turbulent markets being particularly noteworthy. During the 2008 financial crisis, when many financial stocks were plummeting, Chubb managed to outperform the market. Between 2007 and 2010, Chubb’s stock declined by just 11%, compared to a 16% drop in the S&P 500. Despite the challenging period, Chubb’s revenue growth remained positive.
Crucially, Chubb had the capital and profitability to invest throughout the crisis, capitalizing on the weaknesses of its competitors. Once the crisis ended, Chubb’s revenue surged, increasing by 257% from 2010 to the present. This impressive growth has contributed to a 636% rise in Chubb’s stock value over the same period, outpacing the S&P 500’s 568% return. Currently, Chubb boasts returns on equity of around 16%—the highest in decades.
These figures reinforce the idea that Chubb is not only a reliable option during market volatility but also has the capacity to emerge from crises even stronger. But with shares nearing all-time highs, is it still a good time to invest? Warren Buffett seems to think so, and there are compelling reasons to agree with him.
Why It’s Still a Good Time to Invest in Chubb
Late last year, Buffett sought and received a disclosure exemption that allowed him to quietly build a stake in an unnamed company. In May, it was revealed that Berkshire Hathaway had acquired a $6.7 billion position in Chubb. The announcement led to a surge in Chubb’s stock, and it appears that this could become one of Berkshire’s long-term core holdings.
Buffett and Berkshire are no strangers to the insurance industry. In fact, insurance forms the backbone of Berkshire Hathaway’s empire, encompassing a broad range of segments, from automotive insurance to reinsurance. Chubb is a natural fit within this portfolio. As the world’s largest publicly traded property and casualty insurance provider, Chubb has a strong track record of disciplined underwriting and is currently experiencing record profitability, thanks to a favorable pricing environment driven by reduced competition.
This success is no accident. By maintaining a conservative capital structure, Chubb has consistently been able to invest billions even as competitors scale back. The company has also returned significant value to shareholders through dividends and share repurchases. Over the past eight years, Chubb’s share count has decreased from around 470 million to just 406 million.
A Solid Investment with a Strong Foundation
From a valuation perspective, Chubb is attractively priced at just 11 times earnings and 1.8 times book value. Its balance sheet remains robust, and its high profit margins and returns on equity are likely to persist in the near term, bolstered by continued industrywide pricing improvements.
Chubb may not be a quick path to riches, but it represents a high-quality business with a proven history of success in both bull and bear markets. With its reasonable valuation and Warren Buffett’s endorsement, it’s easy to see why Wall Street analysts are so enthusiastic about this reliable stock.
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