warren buffett

Buffett’s Investment Strategy Teaches to “buy now” US Stock

Berkshire Hathaway, led by Warren Buffett, announced its fourth-quarter and full-year 2021 financial results on February 26, when its fourth-quarter operating profit increased 45% year-on-year to $ 7,285 million. I made it clear that I did.

Buffett knows how to create value. After all, he’s been a person who has devoted himself to value creation for 60 years.

And now, Buffett, the “Sage of Omaha,” is showing investors the path to success. His strategy is to focus on companies with strong cash flow and how they can use their abundant funds. In other words, the “era of share buybacks” has arrived.

Under such circumstances, the insurance company Chubb is a company that investors should consider buying stocks. The reason will be explained below.

Buffett is widely recognized as one of the most successful investors of the era.

Since taking control of Berkshire Hathaway in 1962, Buffett has transformed the textile industry, which was already a sunshine industry at the time, into a symbolic investment holding company in the United States.

Berkshire shares, headquartered in Omaha, Nebraska, are now priced at $ 479,345 on the New York Stock Exchange (Class A shares, closing price on February 25).

For most of the last 60 years of leading Berkshire, Buffett has acquired shares in private and public companies operating in the insurance, financial, industrial, and consumer goods sectors.

In addition, it has a track record of investing in companies outside the United States, and in 2008 it acquired a 7.7% stake in Chinese electric vehicle (EV) maker BYD.

Coca-Cola, Kraft Heinz, and American Express are among the companies that Berkshire currently holds a significant share of, according to a report filed with the Securities and Exchange Commission (SEC) on February 14. , Bank of America, Apple, etc.

All of the companies listed above are generating abundant free cash flow (net cash flow).

Cash flow is one of Buffett’s primary criteria for determining investment value. Cash is like a preparation to protect yourself. One of Buffett’s famous sayings is, “You can only tell who is swimming naked when the tide is low.

There are other factors that investors need to know about these investee companies. That’s because management is buying back stock in the open market at a terrifying rate.

Share buybacks reduce the total number of shares and thus have the effect of boosting profits per share. Profit per share trends are one of the indicators that investment analysts are constantly paying attention to.

In addition, share buybacks, along with dividends, are considered by some to be a way to return profits to shareholders.

Apple made a $ 20 billion share buyback in the fourth quarter of 2021 alone. For the full year 2021, purchases will exceed $ 85.5 billion.

Berkshire Hathaway’s own fourth-quarter financial results also reported that he had bought back shares. The company spent $ 6.9 billion in share buybacks this quarter.

In addition, the total amount for the full year is $ 27.5 billion, an increase from $ 22 billion in 2020. Still, according to the annual report, as of the end of 2021, Berkshire had $ 146.7 billion in cash on hand.

In fact, the aforementioned Chub is not included in Berkshire’s investment portfolio. Headquartered in Switzerland, the insurance holding company competes directly with Berkshire’s core privately held company, Gaiko.

Among the publicly traded insurance companies, Chubb is the king. With a market capitalization of $ 88.7 billion, it is the largest non-life insurance company.

In addition, the company agreed in the fourth quarter of 2021 to acquire Cigna-owned insurance assets in seven major markets in Asia Pacific. The total purchase price is $ 5.75 billion and will be paid in cash.

With this acquisition, Chub has reached 54 countries and territories in which it operates, expanding its business areas to the areas of damage, agriculture, commerce, life and reinsurance.

Chub’s management announced on February 2 that the profit margin of its core commercial business has remained at record levels.

In the non-life insurance field, rates have risen at double-digit levels, but Chubb has been able to pass this on to insurance premiums, and the renewal rate remains at a solid level.

Non-life insurance revenue was $ 1.3 billion, up 31% year-on-year. Operating cash flow, which indicates cash inflows and outflows in the core business, reached a positive $ 2.6 billion in the fourth quarter of 2021.

A significant portion of the money the company has thus earned is expected to go to share buybacks.

Chub’s management spends $ 905 million on share buybacks in the fourth quarter of 2021, according to SEC filings.

According to a press release in July of the same year, Chub’s board of directors approved a $ 5 billion share buyback program, which will take place by June 2022.

Discipline and strategy are essential to the success of longer-term investments.

However, the practice is more difficult than it seems. Especially in the current situation where geopolitical risks and inflation concerns are at the forefront.

Warren Buffett has given investors the gift of a truly successful investment strategy.

The stock price of Chub is at a low level with a price-earnings ratio (expected PER) of 12.7 times and a stock price-to-sales ratio (PSR) of 2.2 times.

The dividend yield is 1.55%. Therefore, long-term investors should consider adding this stock to long positions before the price rises.