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Why You Should Add Progressive (PGR) Stock to Your Portfolio

Giverny Capital recently released its Q1 2020 Investor Letter, a copy of which you can download below. You should check out Giverny Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Giverny Capital highlighted a few stocks and Progressive Corp (NYSE:PGR) is one of them. Progressive is an insurance company. Year-to-date, Progressive Corp (NYSE:PGR) stock gained 3.2% and on May 22nd it had a closing price of $74.72. Here is what Giverny Capital said:

"Progressive Corp. is our number four holding, at 6.0%. Progressive competes in the crowded and commodity-like auto insurance industry but has developed over decades both superior underwriting capabilities and an ability to sell auto insurance direct to consumers, which lowers its cost structure. Today, Progressive consistently earns the highest underwriting margins in auto insurance and grows faster than any of its major rivals. We believe its heavy investment in telematics over the past two decades has widened its lead in underwriting vs. all comers. While others can duplicate the investment in telematics, the value is in analyzing the data, including thinking of new ways to use it – and here Progressive’s lead will not narrow until others have years of data in hand and the scientists to parse it.

It’s fair to wonder whether auto insurance is a long-term declining industry, based on safety advances in cars and the potential for autonomous driving. There is a welcome trend to fewer accidents on the road. But today’s cars have so many sensors and cameras in their bumpers and mirrors that each accident tends to be expensive to resolve. In auto insurance terms, accident frequency is down but severity is up. And while autonomous driving is coming, it probably is not coming soon. Americans bought roughly 17 million new cars and trucks in each of the last six years. Many of those vehicles will be on the road into the 2030s. And ride sharing may be creating more miles driven annually, not less, as some passengers call for an Uber or Lyft rather than take public transportation. We’d stipulate that eventually auto insurance will become a sunset industry, but we think Progressive can grow for many years before this happens."

In Q4 2019, the number of bullish hedge fund positions on Progressive Corp (NYSE:PGR) stock decreased by about 9% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with PGR’s growth potential. Our calculations showed that Progressive Corp (NYSE:PGR) isn't among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 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. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:


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