Buying Markel Seems Like a Good Idea
To be honest I have never paid much attention to the "mini Berkshire" aka Markel (MKL), insurance has never really been my thing.
However I have heard many people rave about MKL over the years. It's one of those companies that seems to always come up when discussing long term buy and hold. The kind you buy and just sort of wait it out, read a 10K here and there but mainly just let it collect dust in the corner of your portfolio. These types of companies can make great investments if bought at the right time, and guess what folks, now may just be the right time for Markel.
As you may or may not know, Markel has recently been hammered after their announcement that they will be buying Alterra (ALTE) in the 1st quarter of 2013. I'll leave out the specifics on the deal, you can read about them yourself if you're interested.
There are a few things you need to know about the deal and its likely outcome, some food for thought before you go blowing your life savings on MKL.
- Markel has been around a long time and is basically a powerhouse when it comes to investing metrics like ROE and growing shareholder value. They have a stellar track record and no signs that this will be letting up anytime soon. Price to book is just over 1.00 which is relatively cheap, even for insurance companies that tend to run lower P/B ratios.
- Down ~10% from recent highs prior to acquisition announcement. This is the type of situation I tend to like where there is a sudden price decline based off of news or some other knee jerk reaction. This can provide a great entry point situation.
- Thomas Gayner is the President and Chief Investment Officer and is, umm, super awesome with his stock picking abilities. He has a solid track record and has been around for a long time.
- It should be noted that historically Markel has NOT been the best at acquisitions to add shareholder value; in the past they have been slow and sluggish to say the least. Slow and steady can win eventually, but may bring about many problems in the near term which can be damaging to shareholder value.
So what you have here is a pretty well run company that hasn’t changed its business fundamentally and now is selling for a ~10% discount from last month. Yes there will be some growing pains and the portfolio of ALTE will need to be tweaked in order to be more in line with MKL standards. However, the key to this whole deal is that Thomas Gayner is hands down the man when it comes to stock picking and creating shareholder value. He has a proven record and Markel has a proven record of delivering killer ROE and increasing shareholder value etc.
I’m still digging but I’m seriously considering picking up a position in MKL in the near future. Anywhere under $450/share and I don’t really see how this won’t be rewarding.