1 Obvious Warren Buffett Stock to Buy for $500 Right Now

Through its holding Berkshire HathawayWarren Buffett holds investments in dozens of iconic companies that most investors are already familiar with. But some of its investments lack name recognition, causing most investors to overlook the stocks in question. That’s the case with one of Berkshire’s recent purchases, a stock in which Buffett invested billions of dollars. If you want to buy one of Buffett’s best ideas while the market remains oblivious, this seems like your chance.

Don’t be scared off by this uninteresting stock

Many investors have never heard of Chubby (CB -0.08%). And when they find out what business Chubb is involved in, most people tune out. That’s because Chubb’s main line of business – property and casualty insurance – just doesn’t seem very interesting. Why research an insurance company when you can try investing in the next big electric vehicle or AI stock?

In many ways, Chubb’s business model is similar to that of Berkshire Hathaway – Buffett’s holding company. At its core, the conglomerate is essentially an insurance company. It has partial or total interests in more than a dozen insurance companies, operating in everything from life insurance to reinsurance. Insurers charge premium payments when they take out a policy, but they only need to pay this money later when a claim is filed. They usually hold a ton of money to invest, which the industry calls “float”.

Float can be an incredible asset for an investor looking to take advantage of market crises. When markets crash, capital typically dries up. But because of its insurance cash flows, Berkshire always has extra money to invest, especially when prices are more attractive – an advantage few investors have.

In fact, Chubb operates more like a traditional insurance carrier than Berkshire, which operates more like a diversified investment fund. About 84% of Chubb’s float is invested in low-risk fixed income securities. But Chubb was able to maintain this conservative investment strategy, as it managed to do something few other insurers have: generate positive underwriting profit.

Due to the level of competition in the sector, many insurers have chosen to underwrite policies at or near cost, betting that they will be able to generate sufficient profit from the returns on their investable float. Meanwhile, Chubb had the best of both worlds. Not only has its investment portfolio remained consistently profitable, it has also generated underwriting profit margins of between 10% and 15% – two to three times higher than the industry average.

Suffice it to say, this is boring business. But it has been consistently profitable, a trait that no doubt helped the company attract Buffett’s attention.

2 Types of Investors Should Consider Chubb Stock

Chubb stock won’t be a great option for those looking for maximum growth opportunities. However, there are two types of investors who should consider getting involved.

The first are retirees. History has demonstrated that Chubb can produce respectable earnings over the long term. Its conservative underwriting practices, combined with its conservative investment strategy, should help insulate it from the impact of market downturns. This, in turn, means that its shares should be resilient during downturns – a trait that those on fixed incomes will particularly appreciate.

The second type of investors who should consider Chubb stock are people who want to invest in the “next Berkshire Hathaway.” In the past, Chubb’s business model has been quite simple when compared to Berkshire’s approach. But Buffett’s involvement could change that. Since Chubb has a market capitalization of just $120 billion, it has a much larger investment universe than Berkshire, which is currently worth around $1 billion. If you decide to be more active in your investment portfolio, you can unlock growth opportunities that are not yet priced into your shares.