Alleghany: Small-Scale Berkshire - Barron's

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Meet the (Not-So-) Poor Man's Warren Buffett by Andrew Bary

Summary: Barron's says $3 billion Alleghany Corp. (Y) is "the closest thing to a small-scale Berkshire in the public market." The similarities: Great books and excess capital, conservative CEOs that measure success "the old way," and 15% returns since 1967 (vs. Berkshire's incredible 21%). At 1.3x book value, it's cheaper than Berkshire's 1.5, and its diminutive $3B market cap (vs. Berkshire's $168B) means CEO Weston Hicks can make a difference with investments as small as $100M. Alleghany currently carries $1B in cash: "The company is stocked with cash, and you have a smart guy at the helm," says Reed Conner & Birdwell's Jeffrey Bronchick (he owns a 3% stake). Alleghany got into Burlington Northern Santa Fe Corp. (BNI) ten years before Berkshire's Buffett, and the railroad now accounts for half of its $1B equity portfolio. It also owns stakes in Chevron Corp. (CVX) and ConocoPhillips (COP). Its insurance units made $28/share in 2006, accounting for the bulk of its $30 EPS. Bronchick says it doesn't get full credit for its insurance portfolio. The company carries its real-estate and 55% stake in Darwin Professional Underwriters Inc. (DR) at below-market-value, meaning its true book value is probably $300 and not $271/share. Barron's says shares could jump 50% by 2010 -- "not bad for a low-risk investment."

Related Links: Unusually High Institutional Ownership Stocks • A Trio of Bargain Stocks [Morningstar] • Alleghany website

Comments

[Eli Hoffmann:]

Not sure what I'm missing here, but 1/2 of its equity portfolio, 1/4 of its invested money, and 1/6 of all its capital is in one stock (BNI). That's a pretty big chunk.

2007 Jun 17 10:00 AM

[weiwentg:]

well, Buffett had 40% of Berkshire's investments in American Express at one point, because it had been beaten down so much, and he was so confident in its prospects.

2007 Jun 17 12:40 PM