Jonathan Laing, a Barron’s analyst, recommended Markel in this week’s Barron’s issue. He likes the company because:

1. Since going public in 1986, the insurance company has doubled profits and its stock price every five years.

2. The company doesn’t insure consumer lines, and it limits the amount of commercial property and casualty insurance it writes, preferring noncompetitive niche markets such as insuring commercial garages, horses, day-care centers, dude ranches, taverns and beauty salons.

3. Though Markel is losing business because of its refusal to cut premiums to unprofitable due to stiff competition, it is only a matter of time before the premiums increase as competitors suffer from writing premiums at levels that result in lousy returns. However, Markel’s stock has dropped from $555 a share last fall to just over $400 a share last week.

4. As is the case with insurance companies, premiums means cash to invest, and solid returns have been a major factor in Markel’s success; the company’s portfolio have outperformed the S&P 500 by some two percentage points a year in the past 18 years. Currently, nearly 15% of Markel’s $1.8 billion stock portfolio is in Berkshire Hathaway, Diageo, CarMax and Marriott International. Lately, returns have only mirrored the S&P., but given that the company has many financial stocks, it is not bad, and it is likely the returns will improve over time.

CONCLUSION: Markel’s shares have sagged as the company has ceded business in a vicious insurance environment. The stock could jump 20% as industry pricing improves.

Jonathan Laing’s picks and performance are at:

http://www.trackthepros.com/categories.php?category_id=399