Is Markel a buy?

by macfredmacke | March 7, 2019 4:16 pm

MKL is approaching a 52 week low (954.39). Travis are you buying and what are the thoughts of others?

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    Travis Johnson, Stock Gumshoe
    Travis Johnson, Stock Gumshoe
    Mar 11 2019, 01:31:58 pm

    I value Markel based largely on book value, I think it’s worth a nibble below 1.5X book and a more aggressive buy below 1.4X book, but this is a stock I’ve held for more than a decade and am stubbornly attached to — I would likely keep nibbling on the way down if it falls further, and that’s not a comfortable thing for a lot of investors.

    As of the Dec. 31 book value, that would now be $980 for a nibble or $920 for a better buying opp, though that book value is now quite stale so it could change (book value per share dropped in the fourth quarter, partly because of investment losses that would have bounced back some after that late-2018 swoon and partly because of writedowns (of the CatCo business that’s currently the cause of circling lawyers) and a weak underwriting quarter. My feeling is that the company is likely to recover nicely from that very bad quarter, but that’s just a feeling — and I don’t know whether it will happen in the next few months or the next few years, I just have a lot of confidence in the underlying business and management, I think the Markel CatCo foofaraw is likely to blow over with no real impact, and I think a valuation in the 1.4-1.5X book neighborhood is rational now.

    That’s an upgrade for me, I used to (years ago) consider 1.2-1.3x book to be the bargain basement for Markel, but the business has improved since then and relies more on outside capital (particularly with Nephila now) and on non-insurance businesses (Markel Ventures) that make a somewhat larger premium to book value reasonable. There is certainly risk that it could fall further, particularly if the market is weak for a long time or we string together more ugly disaster years like 2017 and 2018 (hurricanes, wildfires, etc.), but I’m happy with Markel as a very large holding and will probably nibble more if it keeps falling (my last purchase was a $986, in December).

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