Trade wars, on-again off-again tariffs, “liberation day”, and rising geopolitical tensions are roiling markets.
With uncertainty and volatility through the roof, it’s a great time to remember Warren Buffet’s famous saying, “be fearful when others are greedy, and be greedy when others are fearful.”
For a long time, the market has been “greedy”, riding the coattails of momentum and meme trading. Those were the easy trading days. Almost every stock went up no matter how good or bad the underlying business was. It is nice when markets are easy. Unfortunately, easy markets cannot last forever.
So far in 2025, we’re seeing a shift to a more discerning market. Investors have been more cautious. Some overvalued stocks are correcting, and the market seems more efficient about how it allocates value. A more efficient market is a very good thing for those who prefer to be investors over traders. And, the Most Attractive Stocks Model Portfolio is very good, maybe the best, portfolio for an efficient market. I scour the entire market to find the hidden gem stocks for this model portfolio. My firm leverages proven-superior research to deliver you those companies with truly strong fundamentals and undervalued stock prices.
This week’s stock pick is featured from my Most Attractive Stocks Model Portfolio.
You can find the free pick below along with a concise summary of why I like the stock.
Free Most Attractive Stocks Pick: Markel Group (MKL)
Markel Group (MKL: $1,827/share) has grown revenue and net operating profit after tax (NOPAT) by 12% and 24% compounded annually since 2014, respectively. Markel Group’s NOPAT margin increased from 7% in 2014 to 17% in 2024 while its invested capital turns rose from 0.8 to 1.0 over the same time. Rising NOPAT margins and invested capital turns drive Markel Group’s return on invested capital (ROIC) from 5% in 2014 to 18% in 2024.
Markel’s ability to rebound from plummeting bond prices in 2022, and immediately regain profitability in 2023, should give investors more confidence in the company’s ability to navigate the current volatile market.
Figure 1: Markel Group’s Revenue and NOPAT Since 2014
MKL Is Undervalued
At its current price of $1,827/share, MKL has a price-to-economic book value (PEBV) ratio of 0.6. This ratio means the market expects Markel Group’ NOPAT to permanently decline by 40% from 2024 levels. This expectation seems overly pessimistic for a company that has grown NOPAT by 24% compounded annually over the last decade and 15% compounded annually over the last two decades.
Even if Markel Group’s NOPAT margin falls to 10% (below 2024 NOPAT margin of 17% and five-year average margin of 11%) and the company’s grows revenue by 4% (below ten-year compound annual growth rate of 12%) compounded annually through 2034, the stock would be worth $2,274/share today – a 24% upside. In this scenario, Markel Group’ NOPAT would fall 1% compounded annually through 2034. Should Markel Group grow profits more in line with historical levels, the stock has even more upside.
Critical Details Found in Financial Filings by My Firm’s Robo-Analyst Technology
Below are specifics on the adjustments I made based on Robo-Analyst findings in Markel Group’s 10-K:
Income Statement: I made over $350 million in adjustments, with a net effect of removing over $200 million in non-operating expense.
Balance Sheet: I made just under $1.6 billion in adjustments to calculate invested capital with a net increase of just under $300 million. One of the most notable adjustments was for other comprehensive income.
Valuation: I made just under $3.5 billion in adjustments to shareholder value, with a net decrease of over $3.3 billion. The most notable adjustment was for deferred tax liability.
Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.
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