3 Stocks That Could Become the Next Berkshire Hathaway

Includes: LUK, MKL, Y
by: Investment Underground

We think that recent scars caused by Lou Simpson and David Sokol's departures, in addition to Berkshire Hathaway's (NYSE:BRK.A) size, will limit the conglomerate's ability to repeat its past performance. Here are the three companies likely to take Berkshire and Buffett's spotlight as the pieces of the idyllic "leadership baton" are passed:

Leucadia National (NYSE:LUK): Ian Cumming and Joseph Steinberg are not getting any younger and Leucadia is even more dependent on their business-picking prowess than Berkshire depends on Buffett and Munger. However, the two have cobbled together some very unique, valuable assets that the market continues to discount in the wake of the 2008 financial crisis. The company's large stakes in Americredit (ACF), Jeffries (JEF) and Cresud (NASDAQ:CRESY) have been great picks at great prices. Leucadia's large position in Fortescue and other mining operations have profited the firm handsomely on the back of rising copper and iron ore prices.

Markel (NYSE:MKL): The picks by Tom Gaynor and the float management team at insurer Markel Insurance mirror those of Lou Simpson. Gaynor spotted up-and-comers like Carmax (NYSE:KMX) early and did not hesitate to establish large positions with conviction. He also shows a preference for wide moat, quality businesses such as Diageo (NYSE:DEO) and Home Depot (NYSE:HD). The effectiveness and transparency of Anthony Markel and the leadership team is top-notch. Markel has shown a 20%+ book value growth rate since the company's inception.

Alleghany (NYSE:Y): Alleghany has found its comfort zone in property/casualty insurance with real estate mixed into the formula. Its goal is to create stockholder value through ownership and management of a small group of operating businesses and investments. Alleghany’s subsidiaries include Capitol Transamerica and RSUI Group. In its last quarter, the company beat EPS estimates by 1.19 (4.85 actual vs. 3.66 estimated). Alleghany Corporation has had an average earnings growth of 1.9% over the past 10 years. As of the end of February, Alleghany holds $825 million in cash for use in future investments and has no debt to note.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LUK over the next 72 hours.