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Giverny Capital: “Progressive Corp. (PGR) Grows Faster While Consuming Less Capital than Peers”

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Giverny Capital, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A net return of 8.68% was delivered by the fund for the Q1 of 2021, outperforming its benchmark that delivered a 6.17% gain in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Giverny Capital, in their Q1 2021 investor letter, mentioned The Progressive Corporation (NYSE: PGR) and shared their insights on the company. The Progressive Corporation is a Mayfield, Ohio-based insurance company that currently has an $59.2 billion market capitalization. Since the beginning of the year, PGR delivered a 2.36% return, extending its 12-month gains to 24.02%. As of April 21, 2021, the stock closed at $101.21 per share.

Here is what Giverny Capital has to say about The Progressive Corporation in their Q1 2021 investor letter:

"As far as the additions go, at $87 we should have filled up a wheelbarrow with Progressive shares rather than just adding a scoop with our garden trowel. PGR is a large position for us, 5.5% at the end of the quarter. Progressive underperformed the overall GCAM portfolio in our first year, but this is partly because it did not suffer the plunge in February and March 2020 that many other stocks did.

I laid out our basic thesis on Progressive in our initial letter a year ago, but it’s worth repeating: the risk profile of every US driver is a bit different, and Progressive has done more than any other company to use telematics to learn more about how we drive. Most insurers correlate your driving risk to your profession, the value of your home, the number of speeding tickets you’ve accumulated, or maybe your credit score. Many factors have some correlation to your driving tendencies, but none is better than the way you actually drive. Progressive has been using telematics longer than any insurer, so it has years of data on driving patterns that it uses to set rates appropriately.

Progressive today has the highest underwriting margins and the fastest revenue growth rate of any large auto insurer. Because it underwrites risk so well, it needs to hold less capital in reserve to pay potential claims. So it grows faster while consuming less capital than peers. Shareholders benefit from this capital efficiency when Progressive pays periodic special dividends of capital it does not need to backstop potential claims. The stock trades for a significant discount to the S&P 500 PE multiple despite being the technological leader in its industry."

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Our calculations show that The Progressive Corporation (NYSE: PGR) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, The Progressive Corporation was in 48 hedge fund portfolios, compared to 47 funds in the third quarter. PGR delivered a 7.37% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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Disclosure: None. This article is originally published at Insider Monkey.