Berkshire’s ‘mystery’ stock revealed after three quarters of secret buying

Chubb is Berkshire’s ‘mystery’ stock

The “mystery” stock that Berkshire Hathaway was accumulating over the past three quarters is Chubb, a Swiss insurance holding company with a market value of $111 billion dollars.

Berkshire’s SEC-mandated portfolio disclosures for last year’s third and fourth quarters noted it had omitted “one or more holdings(s)” for which it had requested “confidential treatment,” presumably to avoid having copycat buyers drive up its target’s price as it continued to build its stake.

Berkshire’s first-quarter filing released on Wednesday revealed that as of March 31, it held 25.9 million Chubb shares, a stake of 6.4%, currently valued at $7.1 billion. That makes it the tenth largest holding in Berkshire’s portfolio.

Berkshire is now Chubb’s second largest shareholder after mutual fund giant Vanguard, which has 38.4 million shares.

Catch-up filings for the previous two quarters show Berkshire bought 8.1 million shares in the third quarter and 12.0 million shares in the fourth quarter.

We don’t know exactly when purchases were made and what Berkshire paid per share. But using Chubb’s average closing price for each quarter, $5.7 billion is a very rough estimate, giving Berkshire a solid gain on paper for its investment.

The stock is up 45% since the beginning the July-September quarter in which Berkshire started buying.

In another positive for Berkshire, Chubb raised its annual dividend by 5.8% to $3.64 a share. That’s a yield of more than 1.3% based on today’s price.

We won’t know for another three months if Berkshire made more purchases during the current quarter, but the stock did dip below $239 per share in late April, which could have been a buying opportunity.

In a clear example of why Berkshire wanted to keep its interest in Chubb a secret, the stock jumped in the minutes after the company’s after-the-bell filing on Wednesday.

It closed today at an all-time high of $274.28, up 7.6% on the week.

At Barron’s, Andrew Bary writes that while a Berkshire bid to buy all of Chubb may not be likely, “It’s a deal that makes strategic and financial sense.”

He notes that Buffett could put a big chunk of Berkshire’s $189 billion in cash to work by offering a more than 20% premium of $325 per share for a $130 billion deal to buy “the best brand name in property and casualty insurance” with “strong underwriting results that outpace peers.”

That would value Chubb at 15 times earnings, the upper limit of what Buffett prefers to pay.

Bary cites a client note by CFRA analyst Cathy Seifert acknowledging there is “no indication” Berkshire plans to buy all of Chubb, but notes “Chubb’s business mix of primarily commercial lines property-casualty coverage and high-end homeowners’ coverage dovetails well with Berkshire’s existing mix of business.”

Chubb CEO Evan Greenberg (CNBC | Scott Mlyn)

Even as just an equity investment, though, it is getting good reviews.

CNBC.com’s Yun Li reports Deutsche Bank analyst Cave Montazeri is telling clients Chubb is “an ideal fit for Warren Buffett’s investment philosophy, characterized by high-quality business with strong [returns on equity], a robust economic moat, a proven track record of compounding returns, and a distinguished management team.”

Evercore ISI sees the investment as a “slight positive signal” for insurers in general, given Berkshire’s “unique knowledge of industry dynamics.”