Markel Gayner Asset Management is an investment firm with $8.4 billion in assets under management. The company is run by CEO Tom Gayner (Trades, Portfolio,), who has taken inspiration from Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) and its insurance arm in that it invests its insurance float. As such, it has been called a "mini Berkshire."
In this discussion, I will break down the top two tech stocks Markel has loaded up on.
Verisk Analytics
Verisk Analytics Inc. (VRSK, Financial) is a leading data provider for the insurance industry. The company offers end-to-end claims handling via a variety of solutions. For example, the company leverages image recognition technology, which enables auto insurance policy holders to take photos and be notified after a crash. In addition, it offers a variety of fraud detection solutions, which use artificial intelligence and machine learning to detect issues.
The company has recently expanded its services to include image forensics, an AI tool that helps to detect fraud in digital images submitted during a claim. For example, in an auto claim case, this would help to detect edited images or reused ones from the internet.
Verisk also offers solutions for personal injury claims such as an automated medical report assessment.
Growing financials
Verisk reported strong financial results for the second quarter. Its revenue of $675 million increased by 10.15% year over year and beat analyst forecasts by $20.58 million.
A major positive for Verisk is 79% of its total revenue is derived from subscriptions, which is great for consistency.
The largest growth driver for its transactional revenue (21% of the total) was its auto insurance solutions business. This was helped by an agreed continuation deal with a national insurer.
Moving on to profitability, Verisk reported operating income of $306.9 million, which increased by 16.6% year over year. Its earnings per share of $1.35 topped analyst estimates by 4 cents.
The company also reported a 160 basis points increase in its Ebitda margin to 54.1%
The business has $311 million in cash and short-term investments. However, its debt level is quite high at $3 billion. The only consolation is the vast majority of this debt ($2.8 billion) is long term.
Valuation
Verisk Analytics trades with a price-sales ratio of 13.8, which is higher than its five-year average.
It also has a price-earnings ratio of 71, which is higher than its average for the same period.
Based on historical ratios, past financial performance and analysts' future earnings projections, the GF Value Line indicates the stock has a fair value of $205.56 per share and, therefore, is modestly overvalued.
Guru interest
Despite these lofty valuation metrics, Gayner's firm increased its position in the stock by 6,500 shares, which traded at an average price of $210 during the quarter. This is only 12% cheaper than where the stock traded at the time of writing. Therefore, it looks as though Markel is happy to pay for the growth and (potentially) the AI opportunity.
Meta Platforms
Meta Platforms Inc. (META, Financial) runs some the world's largest social networks, including Facebook and Instagram, as well as messaging app WhatsApp. The company recently launched Threads, which is a text-based platform similar to X (formerly known as Twitter).
It became the fastest-growing app ever, reaching 100 million users in just five days. In comparison, it took Twitter over five years to reach that level. A forecast from Evercore expects Threads to reach 200 million users and generate $8 billion in annual revenue for Meta over the next two years.
Financial turning point
Meta announced impressive financial results for the second quarter. Revenue of $32 billion exceeded analysts' predictions by $969 million and marked an 11.1% increase from the previous year.
This growth rate outpaced the lackluster performance of the preceding four quarters, which exhibited varying year-over-year growth rates ranging from -4.47% to 6.64%. This disappointing historical growth was exacerbated by challenges stemming from iOS privacy alterations and monetization difficulties related to Reels. In addition, the macroeconomic environment has caused a major pullback in advertising spend, which did not help the business.
The company also disclosed the number of monthly active users across its suite of applications totaled 3.88 billion, reflecting a 6% increase from the previous year. Specifically, Facebook's monthly active users reached 3.03 billion, demonstrating steady 3% year-over-year growth. However, a large portion of this growth came from emerging market users, which are considered to be less valuable to advertisers due to average income differences.
Shifting our focus to profitability, Meta posted net income of $7.79 billion, a notable 14.9% improvement from the $6.69 billion recorded in the previous year.
This positive trend is particularly noteworthy given the company's disclosure of total expenses amounting to $22.6 billion, signifying a 10% year-over-year increase. Therefore, it is clear that despite growing expenses, Meta is still generating smooth operating leverage.
When I broke down its expenses in detail, I discovered that 57% ($9 billion) is dedicated to research and development. Meta has been accelerating its spend in this area with bold bets on the Metaverse. This has been criticized by some analysts, but Apple (AAPL, Financial) recently announced the launch of the Vision Pro augmented reality headset, which could indicate validation for the space. In a New York Times Events interview, Mark Zuckerberg said that the core family of apps are the main target for investment in the short term.
The company demonstrated robust financial flexibility, generating $11 billion in free cash flow and executing a substantial $793 million stock buyback.
In terms of financial position, Meta Platforms boasts a robust balance sheet, highlighted by $53.45 billion in cash, cash equivalents and short-term investments. Further, the company has long-term debt amounting to $18.38 billion, which is well covered.
Valuation
At the time of writing, Meta trades with a price-sales ratio of 6.79, which is lower than its five-year average.
The GF Value Line also indicates a fair value of $331 per share. Thus, the stock is fairly valued currently.
Guru interest
Markel loaded up on 10,500 shares of Meta in the second quarter. During the quater, the stock traded at an average price of $246. The firm's total position as of the end of the quarter stood at 252,781 shares. This indicates it is bullish on the company.
Final Thoughts
As stated in past interviews, Gayner has drawn a lot of inspiration from Buffett and Berkshire Hathaway. However, he looks to be a little more tempted by growth stocks with investments in Verisk and Meta. Sometimes, quality companies with growth potential are worth paying for, and the guru seems to think so with these two investments.
