2 stocks that I never sell
Saying that I will never sell a stock usually means one of two things: either management has devised a strategy that obviously worsens its advantages over time, or the company is benefiting from a trend that has no end in sight.
For Markel (NYSE: MKL), management evaluates itself over five-year windows and is transparent about its methodical approach to capital deployment. It also follows a model that has proven itself for half a century. On the other hand, Rollins (NYSE: ROL) is riding a wave of climate change that is rendering its services invaluable in an increasingly large part of the globe. Both give me good reason to believe that I will never sell a stock.
Markel is a specialist insurer who has developed expertise in pricing unconventional risks. By focusing on fields like Arabian horses, summer camps and karate schools, he has carved out a niche where competition is not fierce and his experience allows him to accurately assess the right price. an insurance policy.
This expertise appears in the combined ratio. This is the percentage of premiums collected that insurers pay for claims. Similar to gross margin, this is the standard measure of policy profitability. Anything less than 100% means the business made more money than it paid. In the past 15 years, Markel has only had two years where its combined ratio has exceeded 100%. For this decade and a half, it was on average 95%. For context, the industry average is 100% – breakeven point – over the past five years.
This profitability has enabled management to invest in stocks and buy small businesses. This is why many see the company as the baby Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). Like Berkshire, Markel uses book value per share as the benchmark for company value. It has grown 10.6% per year over the past decade, from $ 334 to $ 914. To emphasize its long-term approach, the company uses five-year time horizons to assess its performance. And he’s honest when he’s not up to the task.
Management pointed out in the last letter to shareholders that the stock has not delivered in the past half-decade. At the time of writing, stocks have underperformed the overall S&P 500 Index by an impressive 6,680 basis points since 2015 (100 basis points equals one percent). So far in 2021, the stock has simply held up against the index. We are far from what the shareholders had experienced during previous periods.
|Period||Markel shares||S&P 500||Annual outperformance|
|2006 to 2010||19.3%||0.8%||3.5% Markel|
|2011 to 2015||133.6%||62.5%||11.3% Markel|
|2016 to 2020||17%||83.8%||S&P 500 of 10.8%|
|2021 YTD||14.6%||13.4%||1.2% Markel|
Over the entire 15-year period, the Markel share outperformed only slightly. With stock valuations close to the highest on record by some metrics, this trend of mediocrity is unlikely to persist over the next decade.
Rollins can trace his roots back to a small pest control company in the late 19th century. Today, it has 2.8 million customers at 900 sites around the world. The past few decades have proven that getting rid of unwanted pests and wildlife is not something people cut back on even when the economy is struggling. Rollins has enjoyed 23 consecutive years of revenue growth and has achieved an average annual profit growth of 20% over the past two decades. This is not likely to change.
The company has an impeccable financial profile, with a huge generation of cash flow and little debt. But what convinces me to hold on for the next several decades is the impact that global warming will have on the pests that Rollins earns with his money by eliminating. A few examples prove it.
Cockroaches like hot, humid air in summer. This is their breeding season. As temperatures rise, they also become more active. In fact, they cover even more territory. Although they don’t move much when it’s cold, they do start to walk and run when it’s hot. True migration can occur when the temperature rises above 100 degrees Fahrenheit – they take flight. If you expect dry conditions to hamper their progress, think again. Unlike humans, they can hold their breath for 40 minutes at a stretch in arid conditions to prevent dehydration.
Warmer winters and hotter summers also provide a great breeding environment for rats. With a gestation period of just 14 days and the ability to start reproducing at just one month old, a pregnant spleen can give birth to more than 15,000 babies in one year. It is both impressive and disgusting. With increasing global temperatures, rats brazenly roaming towns and cities like they did during COVID shutdowns could become more prevalent.
Another result of the rising temperatures has been an increase in mosquito-borne diseases. Scientists believe that over the next 30 years, leeches will expand their range to reach half of the world’s population. Recent data suggests that various species are spreading north at around 37 miles per year in the United States and 93 miles per year in Europe. While there are several factors behind the migration, it all adds up to a broader opportunity for Rollins. This is a change that will happen over the next 30 years. For me, that’s a good reason to own stocks and never sell them.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.