Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett is known for his legendary ability to pick value stocks. Chubb (NYSE:CB) is catching a lot of buzz today because it’s an unexpected Buffett bet, and there’s a twist because it was a hidden investment for a while. I am bullish on CB stock because Chubb’s value makes the stock a good choice for just about any portfolio.
Chubb is a Swiss insurance company, but it operates in 54 different countries, so you really should think of Chubb as a global insurer. Perhaps it shouldn’t be surprising that Berkshire Hathaway would take a position in an insurance business. After all, Geico, National Indemnity, and General Re are subsidiaries of Berkshire Hathaway and are all insurance companies.
This still leaves some unanswered questions, though. Is Chubb stock really a good value, and did Buffett actually hide Berkshire Hathaway’s CB stock purchase? Let’s delve into the details and see if there might be a prime investment opportunity right now.
Buffett Kept This Stock Pick Hidden for Months
Buffett and Berkshire Hathaway generally don’t reveal their investments until they’re required to do so in Securities and Exchange Commission (SEC) filings. Yet, Berkshire’s large-scale purchase of Chubb stock was actually kept hidden for longer than usual, which caused a lot of suspense and excitement to build up.
Reportedly, Berkshire and Buffett started building a position in a particular stock in the second half of 2023. However, eager Buffett followers didn’t know which stock it was, as Berkshire requested “confidential treatment” for this investment from the SEC.
Berkshire Hathaway’s Chubb stock stake couldn’t remain “confidential” forever, though. We now know that Berkshire held 25.92 million Chubb shares as of March 31, 2024. This translates to a $6.72 billion investment and a 6.4% stake, so clearly, Buffett really likes this particular company.
Why did Buffett request to keep Berkshire’s Chubb stake “confidential” in 2023’s third and fourth quarters? There’s no way to know the answer for certain, though a Barron’s report suggested that Buffett may have “wanted to accumulate Chubb without tipping off other investors and potentially boosting the price of Chubb shares.”
In any case, the mystery is now revealed, and suddenly, Chubb is getting a lot of attention. Indeed, the shares moved 4.71% in today’s trading on heavy trading volume, which is a pretty good move for a stock that’s not known for being volatile.
Why Would Buffett Choose Chubb Stock?
Just as we can’t know for sure why Buffett kept Berkshire Hathaway’s Chubb stock position hidden, we also can’t know exactly why Buffett would select this stock for Berkshire’s portfolio. Yet, knowing that Buffett is a value-focused investor, we can look for clues. For one thing, Buffett understands the insurance business and, as I mentioned earlier, Berkshire Hathaway already has insurance-company subsidiaries like Geico.
Furthermore, Buffett has been investing in insurance businesses since the 1950s, so this strategy helped make him the wealthy individual he is today.
Beyond that, I used some of TipRanks’ tools to assess Chubb’s financials since Buffett only wants to invest in fundamentally solid businesses. I discovered that Chubb is consistently profitable and usually beats analysts’ consensus quarterly EPS estimates. Moreover, as of March 2024, Chubb had $7 billion in total debt but also $234.87 in total assets.
In other words, Chubb seems to check a lot of “Buffett boxes.” What about value, though? If Chubb doesn’t pass Buffett’s value test, then there’s no point in even looking at CB stock today.
According to Barron’s, Buffett “generally likes to pay no more than 15 times forward earnings for a stock.” Using GAAP measures, Chubb has a forward price-to-earnings (P/E) ratio of 11.68x, which is below 15x and isn’t very different from the sector median forward GAAP P/E ratio of 11.19x. Then, using non-GAAP measures, we can see that Chubb’s forward P/E ratio is 11.67x, which is also below 15x and isn’t much higher than the sector median forward non-GAAP P/E ratio of 10.86x.
Is Chubb Stock a Buy, According to Analysts?
On TipRanks, CB comes in as a Moderate Buy based on five Buys, eight Holds, and one Sell rating assigned by analysts in the past three months. The average Chubb stock price target is $267.07, implying 0.83% upside potential.
If you’re wondering which analyst you should follow when it comes to CB stock, the most accurate analyst covering the stock (on a one-year timeframe) is Matthew Carletti of JMP Securities, with an average return of 14.81% per rating and a 95% success rate.
Conclusion: Should You Consider Chubb Stock?
I’m certainly not telling anyone to buy something just because Berkshire Hathaway did. However, we can find clues as to why Buffett would choose to invest in Chubb. It’s a fundamentally solid and reasonably valued insurance company, and Buffett earned a lot of wealth from insurance businesses. Even if Berkshire Hathaway didn’t secretly invest in Chubb, it would still be a great company to put on your watch list, in my opinion. Therefore, in order to be more like Buffett but also conduct my own due diligence (with the help of TipRanks’ online tools), I would strongly consider CB stock today.
