Warren Buffett’s Best Stocks to Buy for $300 Right Now

Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B)Warren Buffett’s holding company owns dozens of publicly traded companies. It’s a smart move to start tracking this portfolio. Because Buffett is such a long-term investor, there aren’t as many portfolio changes as you might expect. But there was a recent multi-billion dollar purchase that’s worth noting.

Buffett knows a thing or two about this “boring” industry

The insurance sector isn’t exactly the most fashionable place to invest, but it should attract more attention than it gets. After all, Berkshire has a portfolio of insurance companies at the heart of its business model. These entities—many of which Buffett has owned for decades—issue billions of dollars in policies and collect billions of dollars in premiums in return. Because those premiums have to be paid only when a claim is made, Berkshire has the privilege of keeping the money in the meantime. These funds are essentially capital without interest. Buffett calls them “float,” and he’s invested them very wisely over the years.

Suffice it to say, Buffett knows a thing or two about insurance. That’s what makes one of Berkshire’s latest purchases so intriguing. Late last year, reports surfaced that Buffett was buying billions of dollars in financial stocks. This summer, investors learned that it was none other than Tuft (NYSE:CB):one of the world’s largest listed property and casualty insurers.

Berkshire is betting big on this insurance company’s stock

What does Buffett love about Chubb? He’s likely drawn to the company’s long history of conservative underwriting. The insurance industry has seen a flood of capital in recent decades, much of it from start-ups looking to replicate Buffett’s successful business model.

This competition quickly eats into margins, something insurance experts call “combined ratios.” When the combined ratio is 90%, for example, it essentially means that 90% of premiums are paid in claims—the hallmark of a profitable insurance business. But combined ratios can often exceed 100%, meaning the company is losing money on its policies.

In competitive times, many insurance companies lower their underwriting standards. They accept zero to negative underwriting margins in the hopes of earning enough interest on the float to maintain net profitability. However, this strategy can easily go wrong, especially in a bear market when the invested float can actually lose value.

Chubb has proven adept at navigating the competitive cycle over many industry cycles. For example, Chubb’s composite score currently stands at just 86.8%. Meanwhile, the industry average has hovered between 96% and 98%. Over the past two decades, Chubb Never recorded a combined rate exceeding 100%, even though the industry has done so several times before.

Conservative underwriting has allowed Chubb to invest in growth even as other companies retreat. It also allows it to effectively manage leverage, boosting returns on equity in an otherwise low-yield industry.

For example, return on equity has been above 15% in each of the last three quarters. Equally important, Chubb’s valuation is not at all unreasonable. The stock is trading at just 12 times earnings. S&P500meanwhile, it trades at nearly 30 times earnings. Chubb also manages to pay a 1.3% dividend while buying back billions of dollars in stock in recent years.

Berkshire’s stake in Chubb is now worth about $6.9 billion, according to its latest filings — the ninth-largest position in its portfolio. Given Chubb’s conservative approach to a relatively low-volatility industry, it’s a great place for Buffett to stash Berkshire’s growing cash pile. It’s also a great place for everyday investors to park some cash, even a few hundred dollars. Over the long term, Chubb should outpace its cash flow while limiting your losses if markets turn sour.

Is it worth investing $1,000 in Chubb right now?

Before you buy Chubb stock, consider the following:

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Ryan Vanzo has no position in any stocks mentioned. The Motley Fool has a position in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.