Warren Buffett on “Free Money ” Plus Four Picks

In one of his many interviews, Warren Buffett explained how the insurance industry offers the opportunity to “invest in other people’s money and keep all the earnings on those investments,” writes Validea CEO John Reese in TheStreet.

The article discusses the evolution of Buffett’s penchant for the insurance business as well as the industry outlook.

Using his guru-based stock screening models, Reese identifies four high-scoring, small-cap financial picks:

  • INTL FCStone (INTL), a financial services company (market cap of $687 million) that provides advisory services and products, earns high marks for its price-sales ratio and relative strength (price performance compared to the industry as a whole).
  • Maiden Holding (MHLD) provides reinsurance solutions for regional and specialty insurers in Europe, the U.S. and other global markets, and has a favorable ratio of price-earnings to earnings-per-share growth (PEG ratio). Equity-assets and return-on-assets both add interest.
  • Selective Insurance (SIGI) is an insurance holding company (market cap of $2.42 billion) with both a favorable equity-assets ratio and return-on-assets. EPS growth is a plus.
  • Universal Insurance Holdings (UVE) is a private, residential homeowner’s insurance company (market cap of $971 million) that scores well based on its persistent EPS growth, price-sales ratio and PEG ratio.