Brown & Brown: A Split Pick in Insurance

03/27/2018 5:00 am EST


Neil Macneale III

Editor, 2 for 1 Stock Split

Every month, Neil Macneale adds one stock to his model portfolio, while selling the oldest position; each stock is chosen exclusively from among those that have announced stock splits. Here's the latest from his 2-for-1 Stock Split Newsletter, along with a cautionary note for investing in the current environment.

The latest addition to our model portfolio is Brown & Brown (BRO), an insurance company. Brown and Brown had a great score in absolute terms based on our analysis.

Brown & Brown was founded in 1939, went public in 1959, and is headquartered in Daytona Beach, Florida. This is a diversified insurance agency, wholesale brokerage, and service company focusing on property and casualty lines and worker’s compensation.

The standout numbers for BRO are its returns and profit margins, both well in excess of those of its peers. In addition we get very stable growth, a strong balance sheet, and low volatility.

My prediction is this will be a rather “under the radar” type of company but a steady performer, and one we will be happy to have in the 2 for 1 portfolio.

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Meanwhile, regarding the current market environment, unemployment at record lows, earnings beating expectations, corporate windfalls due to tax reform. So what’s not to like? And the icing on the cake; since the beginning of the year the 2 for 1 portfolio has risen at a pace 20% faster than that of the overall market.

Our portfolio is right at its all-time high as I write this, bringing into question my conviction that “something bad” is going to plunge us into a major bear market. I think this is still a safe prediction — we just don’t know what the bad thing will be and the crystal ball remains quite cloudy as to the exact timing of this event.

For investors of a certain age (like me), the prospect of seeing their nest egg dropping 40+%, as in 2008, is scary. I keep the 2 for 1 portfolio nearly fully invested in the stock market because our methodology requires it, but I must disclose most other family assets are primarily in cash or real estate at the moment. Don’t let all the good news hide the reality that the market does sometimes go down.

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