Buy this quiet corner of the stock market as the US braces for a highly active hurricane season, research firm says
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- CFRA recommends investing in insurance stocks ahead of what's expected to be a busy hurricane season.
- Scientists at Colorado State University have predicted 23 named storms, 11 hurricanes, and 5 major hurricanes.
- Recommended stocks by CFRA include American International Group, Arch Capital Group, and Berkshire Hathaway.
The prospects for a highly active US hurricane season means investors should snap up shares in a quiet corner of the stock market: insurance companies.
That's according to CFRA, which highlighted in a recent note a handful of insurance stocks that stand to gain amid the 2024 hurricane season.
Forecasters at Colorado State University's Department of Atmospheric Science have predicted a "very active" hurricane season this summer with expectations for 23 named storms, 11 hurricanes, and five "major" hurricanes that range from category three to five.
The hurricane season kicked off earlier this week with Hurricane Beryl, which turned into a category four storm and hit several Caribbean Islands as it made its way into the Gulf of Mexico towards the Yucatan peninsula.
"If this grim forecast comes to fruition, it will likely buoy pricing for many lines of property-casualty insurance and reinsurance, providing certain underwriters' shares with a catalyst," CFRA said.
At the same time, an active hurricane season could be disruptive to the homeowners and commercial property markets.
Therefore, CFRA recommends investors focus on five insurance and reinsurance companies that have limited or manageable catastrophe and hurricane exposure.
Those five companies include American International Group, Arch Capital Group, Arthur J. Gallagher, Berkshire Hathaway, and Progressive.
"We view the five names highlighted… as well positioned to benefit from the likely ongoing industry-wide pricing power, or from other company-specific catalysts, while having a manageable level of exposure to catastrophes," CFRA said.
For Berkshire Hathaway, CFRA reiterated its $472 price target for Class B shares, representing potential upside of 16% from current levels.
Berkshire Hathaway's insurance and reinsurance operations include GEICO, Berkshire Hathaway Primary Group, General Re, National Indemnity, and Alleghany.
"Thanks mainly to the acceleration in reinsurance top-line growth, we expect all of Berkshire Hathaway to post operating revenue growth of between 10% and 15% in 2024 and between 12% and 15% in 2025, versus operating revenue growth of nearly 21% in 2023," CFRA said.
CFRA added that Berkshire Hathaway offers investors diversification and optionality via acquisitions thanks to its near-$200 billion pile of cash, which CFRA called "ample 'dry powder' for future deals that will enhance growth."