When building wealth through the market, one of the most straightforward ways is buy the best companies and keep them for a long time. When looking for top stocks, you want to find stellar businesses with positive motivations that can drive future growth.
One company that is often overlooked by investors is insurance brokers. Insurance companies are well positioned to benefit by helping customers find insurance premiums that match their risk tolerance. Two insurance businesses that have prospects for future growth are Marsh & McLennan (NYSE: MMC) and Goosehead Insurance (NASDAQ: GSHD).
1. Marsh & McLennan Companies
Marsh & McLennan advises companies on risk, strategy, and workplace issues. The company helps companies manage risks and connects them with insurance that helps mitigate those risks. Risk and insurance services make up 60% of Marsh & McLennan’s revenue, with consulting making up the rest.
What makes Marsh & McLennan unique is that it is a trusted advisor to companies looking to address risks and issues such as compensation, retirement plans, and green business adoption. This constant demand helps the insurance broker’s income to grow continuously. Over the past decade, Marsh & McLennan’s revenue has grown at a 6% annual rate (CAGR), while its net income has grown at a 13% CAGR.
Marsh & McLennan also has a few tailwinds that benefit its business today. First, rising insurance rates have benefited the industry. That’s because Marsh & McLennan receives commissions from clients that are paid to the insurers they connect. According to the Marsh Global Insurance Market Index, insurance prices rose 9% from last year, and insurance prices have risen 19 quarters in a row.
The company has also benefited from strong demand for its services in an uncertain economic environment. In recent years, companies have been struggling with product quality issues, low prices, volatility in capital markets, and the transition to green energy. Dan Glaser, CEO of Marsh & McLennan, he told investors that “the more unstable the world, the greater the need for our services.”
Marsh & McLennan has a chance to succeed through any market, so the prospect of a recession does not affect the company much. According to Glaser, the company has grown its earnings per share (EPS) every fiscal year since 1962, making it an excellent buy and hold.
2. Goosehead Insurance
Goosehead Insurance is an organization that sells insurance through its headquarters and franchisees. The company has done it invested heavily in technology developing franchisees, which he sees as his long-term growth strategy. Since 2019, the company’s premiums have grown at 31% CAGR, while its premiums have grown at 52% CAGR.
The company sees the franchise method as its golden ticket to long-term revenue generation through revenue sharing. In the first license agreement, which lasts for about ten years, Goosehead earns a 20% commission from those who sell its products. Goosehead fees then jump to 50% when the borrower renews their contract.
Goosehead’s number increased by 25% in the second quarter compared to last year, bringing its total franchises to 1,344. The company has seen strong growth this year on the top line, with revenue up 36% to $94 million. Operating expenses also increased, mainly from staff salaries, as well as operating expenses. As a result, Goosehead has a net worth of $2 million after posting a $1 million profit through six months last year.
It’s important to remember that Goosehead spends a lot of money on new salespeople while onboarding and training employees on the business. However, over time, franchise fees it could be very profitable for Goosehead, which is why I think the stock has the potential to be very good for the long term.
10 stocks we like better than Marsh & McLennan
When our team of award-winning analysts has a stock tip, it pays to listen. After all, the newsletter they have been running for over a decade, Motley Fool Stock Advisorhas tripled the market.
They only reveal what they believe it to be ten best stocks for investors to buy right now… and Marsh & McLennan was not one of them! That’s right – they think these 10 stocks are the best buys.
*Stock Advisor will be back from August 17, 2022
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.