Stock Of The Month: January 2026

What is AJG? - Company Overview

AJG, or Arthur J. Gallagher & Co., is the third-largest insurance broker in the world by revenue. The company also offers risk management and HR/benefits consulting services. AJG operates in two segments.

Insurance brokerage (88% of LTM revenue)

AJG operates as an intermediary in the risk-transfer ecosystem. Think of it this way: insurance carriers like Liberty Mutual, Chubb, and Travelers are the companies that actually underwrite policies and pay out claims. AJG is the broker—the middleman who helps businesses figure out what coverage they need and shops it across multiple carriers to get the best deal. They're essentially insurance consultants.

Instead of selling its own policies, AJG helps businesses find and structure coverage from these carriers and then manages those relationships over time. In return, AJG is paid primarily through:

• Commissions, usually a percentage of the premium that the client pays to the carrier, or
• Brokerage and advisory fees that clients pay directly for program design and ongoing service.

For its core insurance brokerage business, the Company often targets mid-market companies, which are big enough to need sophisticated insurance but too small to self-insure. These include privately-owned companies, regional firms, public entities, non-profits, and professional service firms. Gallagher also serves small businesses and individuals via standardized package programs or through its network of agencies.

Risk management and claims services (12% of LTM revenue)

Through its Gallagher Bassett division, AJG operates one of the largest property-casualty third-party administrators (TPAs) globally. A TPA handles the day-to-day administration of insurance claims for companies. Instead of a business dealing directly with their insurance company when accidents happen, Gallagher Bassett steps in to process claims, investigate incidents, and manage payments. This business provides claims and risk-management services for large organizations that self-insure or carry high deductibles, as well as for insurers that outsource claims handling. Gallagher Bassett is typically paid per claim or through program-management fees, with relationships that are often recurring and multi-year. The unit primarily serves Fortune 1000 companies and major public entities.

Beyond TPA services, AJG also generates a smaller share of revenue from adjacent activities, including retail benefits consulting (health and HR programs), wholesale brokerage (helping smaller agencies place specialty coverage), and reinsurance brokerage via Gallagher Re.

Value Proposition in the Insurance Ecosystem

AJG creates value for clients by combining specialized expertise with the advantages of scale. In its role as an insurance broker, the firm acts an outsourced risk-management partner, assisting clients to:

• Identify risks and exposures - property damages, product / employee liability, data breach
• Explore appropriate coverage structures - level of coverage and deductibles
• Secure attractive terms - AJG generates substantial business for carriers, so it can often obtain better pricing, capacity or customized programs
• Navigate policy language - AJG's industry and insurance experts deal with policy and claims documents, a non-core workflow for clients
• File claims and negotiate settlement with insurance carriers

Beyond market access, scale also enhances the company's advisory capability. CORE360 is AJG's secret weapon—a proprietary data and analytics platform that's essentially like having access to thousands of similar companies' insurance programs. When you're trying to figure out if you're overpaying for coverage or if your deductibles are right, CORE360 can show you exactly what comparable businesses are doing and where you might be leaving money on the table. With its wealth of data, this platform allows AJG to identify savings opportunities and program improvements that go well beyond a simple price-shopping exercise. This consultative, data-informed approach helps differentiate AJG from more transactional brokers.

For insurers, AJG is also a valuable partner. Its size and distribution reach provide carriers with a dependable flow of business and access to a broad, diversified client base. The company sits at the center of the risk-transfer ecosystem, connecting buyers and carriers, improving outcomes for both sides, and adding value through scale, expertise, and service across the full insurance lifecycle.

Evolution of the Company - From a single office to a global powerhouse

AJG was founded in 1927 by Arthur J. Gallagher, who was a pioneer in the insurance sector and is credited with innovations such as the Hartford Retrospective Rating program (a sophisticated, loss-sensitive workers' compensation plan for large businesses) and Chicago's first large-deductible fire insurance policy.

Arthur's son, Robert E. Gallagher, became CEO in 1963. He continued his father's domestic expansion but also tapped into offshore insurance markets. 1984 was a pivotal year for the company and the CEO, as AJG went public and Robert Gallagher penned "The Gallagher Way", a set of 25 tenets that continue to define the company's culture today.

J. Patrick "Pat" Gallagher (the founder's grandson and Robert's son) was appointed as CEO in 1995, and he remains at the helm today. His tenure was characterized by acquisition-led growth as a major complement to organic growth. AJG recently disclosed that "since January 1, 2002, we have acquired 770 companies", which means that Pat Gallagher has overseen all these and more. He estimated that fewer than 5% of these deals did not work out in a recent interview. Some major acquisitions in recent history:

• 2019: JLT was acquired by competitor Marsh & McLennan (MMC), with AJG scooping up JLT's aerospace business (for global aviation broking) that was divested as a result of the deal
• 2021: acquired the treaty reinsurance brokerage operations of Willis Towers Watson (WTW, Willis Re) for ~$3.25bn. When competitor Aon's (AON) attempted merger with Willis Towers Watson fell apart due to regulatory issues, AJG swooped in to buy Willis's Re. The acquisition instantly vaulted Gallagher into the top tier of global reinsurance brokers.
• 2023: acquired Buck, a large benefits and pension consulting firm, for $620mm. Buck brought extensive retirement consulting expertise (including administering pension plans in the U.S., UK, Canada) and expanded AJG's consulting capabilities in benefits/HR, positioning it more strongly against Mercer or WTW.
• Late 2023: purchased Eastern Insurance Group (a sizable New England retail broker), Cadence Insurance, and My Plan Manager (an Australian disability plan administrator) – all larger-than-typical acquisitions aimed at strategic growth areas
• 2024: In December 2024, AJG announced an agreement to acquire AssuredPartners (AP) for $13.45bn. AP is a U.S.-based broker with 11,000 employees and 400+ offices across North America and Europe. This is the largest deal in AJG's history and one of the largest ever in the brokerage industry. Deal closed August 2025.
• 2025: In April 2025, it completed the $1.2bn acquisition of Woodruff Sawyer, a prominent San Francisco-based insurance broker known for technology industry clients.

Competitive Landscape

The global insurance brokerage and consulting industry is dominated by a few large players at the top, followed by many mid-sized firms and thousands of small independent or regional shops.

By brokerage revenues, Gallagher is currently the world's 3rd largest insurance broker. AJG CEO Pat Gallagher highlighted that global insurance premiums are about $7 trillion annually. His company placed roughly $125 billion of premium, so "we have no market share". This dynamic underscores the fragmentation of the global insurance brokerage industry and the massive runway for growth and consolidation for the leaders.

AJG competes with Marsh & McLennan (MMC) and Aon (AON) for corporate clients, but AJG's sweet spot is mid-market clients rather than the largest firms. Conversely, MMC and AON largely go after the biggest fish, which means AJG rarely does head-to-head against the two largest players in the market.

As for why AJG wins versus competitors, there is one old-school reason and one new-school reason. With nearly a century in the insurance brokerage business, the company has history, expertise, and brand equity that clients can trust in an area that is esoteric for many and can result in large losses. The new-school reason why AJG wins is its unabashed push into data and analytics, anchored by the company's CORE360 data and analytics platform that leans on AJG's scale, troves of data, and technology to improve program and coverage decisioning for clients. This technology specifically diagnoses risk and facilitates program design by analyzing six drivers:

• Premiums
• Losses within retentions and/or deductibles
• Coverage gaps
• Contractual and assumed liabilities
• Uninsured vs. uninsurable losses
• Program structure (how limits, layers, captives, etc. are put together)

Why We Love AJG's Business

We love AJG as a five-plus-year investment due to its:

1. Resilient and sticky demand,
2. Secular trend towards more complex risks, and
3. Enviable financial performance

Resilient and sticky demand

AJG's core insurance brokerage model is durable, recurring, and resilient across economic cycles because of the fundamental nature of commercial insurance.

For most businesses, insurance is not a discretionary purchase. Coverage is often required by law, by lenders, or by customer and landlord contracts. For example:

• Workers' compensation is legally required in all US states for construction companies
• Professional liability or medical malpractice is legally required in most states for physician groups, surgery centers, or physical therapy practices
• Property and liability insurance is carried by commercial real estate owners because although not required by law, most lenders or lease agreements require coverage

As a result, even during periods of economic slowdown, most companies cannot materially reduce their insurance spending. The risk of being uninsured or violating contractual requirements is simply too great.

This structural necessity also shapes how clients perceive brokerage compensation. The economic stakes of risk transfer (preventing catastrophic losses, protecting cash flow, and satisfying regulators and financing partners) are enormous compared to the cost of brokerage commissions. Because a broker's compensation is typically a small percentage of premium, it is modest in the context of the overall insurance program and microscopic relative to the potential cost of being underinsured or mis-insured. Clients are therefore primarily optimizing for expertise, continuity, and risk outcomes, not for minimizing broker fees.

Here's another key advantage: commercial insurance renews every year like clockwork. Unlike your car insurance that you probably just auto-renew without thinking about, businesses actively work with their brokers at renewal time—there's actual work involved in updating coverage, reviewing claims history, and renegotiating rates. That annual engagement is where AJG gets paid recurring commissions with very high margins. At renewal, AJG reviews program structure, renegotiates with incumbent carriers, updates exposure bases (headcount, facilities, fleets, insured values), adjusts limits and deductibles, and incorporates loss-experience and risk-control insights into the next policy year. Renewal commissions compensate the broker for this ongoing advisory and servicing work across the full policy lifecycle.

Because the incremental work required to service and renew an existing client is far lower than acquiring a new client or designing a program from scratch, renewal commissions typically carry very high incremental margins. This combination of 1) essential demand, 2) commissions that are small relative to clients' risk stakes, and 3) a recurring renewal revenue base, is a major reason why AJG's brokerage business is both durable and economically attractive over time.

Secular trends towards more complex risks

Risks are becoming meaningfully more complex, and that shift fundamentally changes the role of an insurance broker. In the past, insurance was largely about protecting discrete, tangible assets (buildings, vehicles, and employees) against relatively bounded risks. Today, however, risks are deeply interconnected. Rather than isolated loss events, modern corporate risk increasingly resembles a web of operational, financial, legal, and reputational exposures that unfold across multiple dimensions at once. For example:

• A cyber incident can simultaneously halt operations, expose customer data, and trigger costly regulatory actions
• Geopolitical tensions can cripple supply chains, idle production lines, and activate contractual penalty clauses
• Climate-driven natural catastrophes can destroy physical assets while also disrupting regional economies for months

Think about a manufacturing company today versus 30 years ago. In the past, their main risks were straightforward: factory fire, worker injury, product defect. Today? Add ransomware attacks that shut down production, climate events disrupting suppliers in Southeast Asia, GDPR violations from customer data breaches, and social media crises from product safety concerns. One incident can trigger losses across five different policy types. That's where a sophisticated broker like AJG becomes invaluable.

For businesses, this rising complexity makes risk management harder, but for sophisticated brokers like AJG, it meaningfully expands where and how they add value. With more complexity, AJG adds value three ways:

1. The company transitions from being a transactional "price shopper" to a strategic advisor who helps clients quantify exposures and design programs that may be bespoke or multi-layered rather than standardized.
2. Because AJG sees thousands of similar risks across industries and geographies and boasts its CORE360 platform, it can benchmark how peers structure coverage and which approaches have historically led to better claims outcomes.
3. The company can earn in more ways such as 1) advisory revenue, 2) performance-based compensation tied to program design, 3) reinsurance brokerage income, and 4) recurring third-party administration fees for claims management, reporting, and loss-control programs through their Gallagher Bassett business.

Viewed together, this is a secular (long-term, permanent) rather than cyclical (temporary, boom-and-bust) trend. As corporate risk becomes more interconnected and harder to manage internally, clients rely more heavily on brokers with specialty expertise, data, and multidisciplinary service platforms. In that environment, AJG becomes less a commoditized distribution channel and more an embedded risk partner (an advisor, program architect, and ongoing services provider) whose value proposition strengthens as the world becomes more complex.

Enviable financial performance

Here's where the numbers get exciting. AJG's business is a high-quality one underpinned by a recurring revenue base and a capital-light model (meaning they don't need to spend billions on factories, inventory, or equipment—just experts and technology).

The company's historical financial performance shows just this, and four particular aspects of AJG's numbers excite us:

1. Brokerage segment revenues have grown at a 15% annualized rate since 2018, and average annual organic growth was roughly 7%; this means roughly half of the growth in that core segment came organically while half came from acquisitions
2. Despite being a serial acquirer, AJG managed to expand adjusted EBITDA margins from 16% in 2018 to 31% in 2024, a near doubling of the all-important profit metric due to scale, pricing power, cost efficiency, and synergies with acquired businesses
3. Free cash flow has nearly quadrupled from 2018 to 2024, with free cash flow margin growing from just under 10% to just over 20% during the period
4. The company has increased its dividend every year since its IPO more than 40 years ago, even during the 2008-09 Great Financial Crisis that pummeled many other financials businesses.

Let's quickly define two key metrics we'll reference throughout. P/E (price-to-earnings) is simply how much investors are willing to pay for each dollar of profit. A stock trading at 20x P/E means investors pay $20 for every $1 of annual earnings. EBITDA (earnings before interest, taxes, depreciation, and amortization) is essentially operating profit—the cash a business generates from its core operations before accounting and financing decisions.

Why Is Now the Right Time to Buy AJG?

Unless valuations are at nosebleed highs, it's usually a good time to invest in a high-quality business. For AJG, the opposite is actually true in that the stock is trading at historical lows, making for a very opportune time to get in.

AJG is trading at just under 20x forward P/E, which is 0.85x relative to the S&P 500's P/E multiple. Both these figures are well below the company's five-year historical averages and are barely above the absolute troughs for this half-decade period.

That the opportunity exists is necessary but not sufficient for a long-term investment. We must also understand WHY the opportunity exists to judge whether we are buying into an elite business with a great entry or a value trap (a stock that looks cheap but stays cheap because the business is actually deteriorating).

There are two identifiable reasons why AJG is cheap: the softening insurance market and the company's early 2025 acquisition of AssuredPartners.

The insurance market

The pricing chart below illustrates an insurance cycle transition. Insurance markets cycle between "hard" and "soft" periods. In a hard market, insurance rates go up significantly—carriers are more cautious and charge higher premiums. In a soft market, competition between carriers drives prices down and coverage is easier to get. The period starting in 2018 and ending in 2023 reflects a sustained "hard market" with significant rate increases across commercial lines. This has given way to recent periods of moderation and "softening".

Because AJG's commissions are largely calculated as premiums x commission rate, a period of smaller increases in premiums should correspond with reduced earnings growth for insurance brokers. This normalization is the first reason investors have marked down what they're willing to pay for AJG's earnings.

For long-term investors willing to hold the stock for five years or more, this backdrop may represent opportunity rather than risk. AJG's track record shows that long-term value creation is driven less by insurance pricing cycles and more by durable business qualities such as recurring revenues, capital-light economics, high returns on capital, and disciplined acquisitions. From that perspective, a softening market is a temporary headwind, not a reflection of weaker fundamentals, and may offer a more attractive entry point than buying at peak-cycle conditions when optimism is already priced in.

The AssuredPartners acquisition

In late 2024, AJG announced the largest acquisition in its history (and one of the biggest deals in the insurance brokerage space) by purchasing AssuredPartners in a nearly $13.5 billion deal. The 11th largest US insurance broker by revenue, AssuredPartners would further AJG's mid-market P&C dominance and give the company more expertise and data in the Transportation, Energy, and Healthcare sectors.

However, the market grew skittish of the deal for a few reasons:

• A large deal means more integration risk (culture, talent, operations, systems/tech), and at over 14x EBITDA, some were nervous that AJG overpaid for this asset. To put this in perspective, they paid about $14 for every dollar of AssuredPartners' annual operating profit—which seemed high to some investors
• Originally, AJG communicated a Q1 2025 close, but with some extra regulatory reviews and other delays, the deal did not close until August 2025. How much did this distract AJG management for roughly nine months?
• During this period, organic revenue growth in the all-important Brokerage segment slowed from 8% in Q4 2024 and 9% in Q1 2025 to 5% and 4% in the two following quarters, respectively
• AJG financed part of the deal with new debt, bringing the company's total debt-to-adjusted EBITDA ratio to over 3x

To these points, we counter with the following:

• Taking into account a deferred tax asset of nearly $1 billion from AssuredPartners and proposed synergies, the price paid was roughly 11x EBITDA, in line with AJG's long-term acquisition multiple paid for targets
• AJG actually made over ten smaller acquisitions since announcing the AssuredPartners deal while continuing to drive organic growth, so we disagree that the AssuredPartners deal was a large distraction or roadblock
• 8-9% organic growth is not a sustainable level and 4-5% (which is what we're underwriting for long-term organic growth), is healthy. The deceleration is not a signal of a worse business but instead a softening of the entire insurance market, as premium growth slows
• We usually don't get too worried about a 3-4x gross leverage ratio for a resilient business, and AJG is just that. Net leverage (total debt minus cash, divided by EBITDA) is just under 3x, which means AJG could theoretically pay off all its debt in less than three years using just its operating profit. That's a very manageable level. Given the company's profit margins, free cash generation, and debt maturity schedule, we don't think the balance sheet is stretched

We are constructive on the AssuredPartners acquisition. Both firms are middle-market brokerages, and this alignment creates meaningful revenue-synergy opportunities, particularly from cross-selling AJG's specialty capabilities such as reinsurance, wholesale products, and global services into AssuredPartners's client base, and vice versa.

We view AJG's initial estimate of $60 million in revenue synergies from "commission rate adequacy", premium finance and fiduciary interest income, and greater use of internal wholesalers" as conservative because it doesn't factor in enormous cross-sell opportunities, with much upside potential. We're excited that outperformance on synergies could be a positive catalyst for the shares over the next couple of years.

At a higher level, integration often introduces short-term noise that inflates perceived risk. But in brokerage combinations with similar business models, integration is typically executional rather than existential. This very dynamic can create temporary mispricings when cultural alignment and cross-sell opportunities are strong.

Why We Trust AJG Management

Nearly a century after its founding, AJG remains led by a member of the founding family. J. Patrick Gallagher, Jr., the company's Chairman and CEO, represents the third generation of Gallaghers to run the firm and quite literally grew up in the business. He joined AJG in the 1970s in entry-level production and operating roles (rather than parachuting in as an executive) and spent more than two decades working across sales, client service, field leadership, and corporate management before becoming CEO in 1995.

Investors can look no further than the company's stock-price performance under Pat Gallagher's leadership to see that his tenure has been extremely profitable for investors, with AJG's stock returning roughly 8,000% since 1995 vs. the S&P 500's 2,500% return.

The stock price performance speaks to AJG's compounding of revenue (organically and through M&A), earnings, and free cash flow over a long horizon, all while paying a dividend and maintaining a conservative balance sheet.

Another reason to be confident in AJG's leadership is alignment. The CEO and senior members of the Gallagher family are significant shareholders in the business, and much of that ownership has been built over decades through compensation, equity grants, and retained stock rather than through short-term financial engineering according to our research. Furthermore, their ownership of AJG stock dwarfs their base salaries, incentivizing them to drive stock price performance, which aligns squarely with shareholder interests.

That brings us to culture, one of the defining features of AJG. AJG's culture is very specifically embodied in "The Gallagher Way", a set of 25 principles originally written by previous CEO Robert Gallagher in 1984 as the company went public. What makes The Gallagher Way notable from an investor perspective is not just that it exists, but that it has been durable.

Employees across generations point to these tenets as reinforcing client advocacy, long-term relationships, and ethical behavior. The result is stickier client relationships and stronger talent attraction and retention. Many acquired firms also cite AJG's culture as a key reason they chose to sell to Gallagher rather than to another broker or private equity buyer, and as a reason integrations have tended to proceed smoothly, reducing M&A risk.

We also assess AJG's leadership credibility by how the company behaves through cycles. In boom periods, management has avoided over-extension or abrupt strategic pivots, while in softer markets it has remained resilient by continuing to invest, take share, and strengthen core capabilities. Rather than panicking during soft markets or getting overconfident during hard markets, AJG's management stays remarkably steady. They don't chase every shiny object or slash costs at the first sign of trouble, a dynamic well illustrated by the stability of adjusted EBITDA margins across insurance cycles.

What Does AJG's Future Hold?

Taken together, premium penetration in the mid-market, disciplined M&A, margin expansion, and recurring free-cash-flow conversion means AJG will continue to be a quality compounder over the next five years with the following characteristics:

• Mid-single-digit percentage organic revenue growth from higher insurance penetration among mid-market clients as well as taking share from subscale competitors
• Mid-single-digit percentage revenue growth from disciplined M&A—both small bolt-on acquisitions (adding a regional broker here, a specialty firm there) as well as occasional transformative deals like AssuredPartners
• Adjusted EBITDA and free cash flow margin (the cash a company generates after paying for operations and equipment) increases over time
• Increasing dividends per share despite consistent acquisition spend
• A healthy balance sheet with net leverage consistently under 4x even when deals temporarily elevate debt levels

Looking ahead over the long term, we think this financial profile will translate into a stock price approximately $600 per share by the end of calendar 2030, better than a doubling of your investment in AJG or a near-20% annual return that will easily exceed the market's return.

In the Base Case, we assume that AJG's P/E multiple expands slightly over time but remains about 10% below its five-year historical average. We think there's a probable Bull Case where AJG's multiple actually rises to or slightly exceeds the five-year average. If this plays out, annual returns over three to five years will handily top 20%.

One emerging area of the business we're particularly excited about as a driver of future growth and efficiency is AJG's growing analytics capability. It is also potentially a precursor to much broader AI adoption and a potential driver of incremental organic growth and share gains.

CORE360 is AJG's analytics framework for evaluating risk exposures, cost drivers, and coverage options, enabling more data-driven recommendations for clients. As these capabilities deepen, we believe they will widen AJG's advantage over smaller competitors by allowing the firm to deliver better insights more efficiently. Today, CORE360 enables benchmarking across thousands of similar accounts, analysis of loss and premium trends, and real-time visibility into market offerings.

Over time, this raises switching costs and positions AJG less as a price shopper and more as a trusted advisor. Longer term, it also lays the groundwork for applying AI to insurance brokerage, which is a data- and judgment-intensive business where scale, information, and decision support really matter.

What Are The Key Risks And How Do We Feel About Them?

No investment is without risks, and it's important for retail investors to understand the key risks that AJG faces.

Competition and Pricing Pressure

The brokerage industry is competitive, and AJG is facing off against large rivals such as MMC and AON as well as myriad smaller firms due to the fragmented nature of insurance brokerage.

Competitors might cut their commission rates or fees to win business, which can pressure AJG's own pricing or lead to customer churn and lower win rates if the company decides not to follow. Because insurance and insurance brokerage are essentially large data and decisioning problems, tech and AI-enabled new entrants (who have lower labor or manual-process costs) could also emerge and compete on price to gain a foothold in the industry.

We take comfort in three factors in the face of this risk:

• Price is not the most important factor in the vast majority of clients' insurance brokerage decisions, as the commission to the broker is dwarfed by premiums and potential losses
• History has shown that the largest companies have avoided price wars and races to the bottom, instead competing on expertise and relationships
• The insurance brokerage industry is highly fragmented and there are opportunities for multiple parties to gain share from the long tail of subscale, technology-limited independent brokers

Acquisition Integration & Execution Risk

AJG's growth strategy has and likely will continue to rely on both tuck-in and transformative acquisitions. Acquisitions present the risk of overpaying, integration challenged, and potential management distractions that could hinder organic growth.

The hefty AssuredPartners acquisition, announced in late 2024 and closed in the summer of 2025, is an example. While integration has been smooth so far, it is ongoing and may take another year or two to fully realize revenue and cost synergies of the combination.

Specifically, absorbing AssuredPartners's 11,000 employees and hundreds of offices with AJG's operations is complex. There are issues of client and talent retention, operations and technology integration, and cultural fit. If synergies fail to materialize, the original price paid could prove too onerous and ROICs could suffer. These risks will rear their heads with any sizable acquisition going forward.

With regards to this risk, we look to two factors in particular:

• Since the beginning of 2002, AJG has acquired 770 companies, and CEO Pat Gallagher estimated that less than 5% of these deals were unsuccessful. In short, AJG has plenty of experience in M&A
• In addition to constructive management commentary, AJG has done 10+ deals alone since AssuredPartners was announced, so we strongly believe that integration is going well and management distraction is no more than originally planned

"Key Man" / CEO Succession Risk

Pat Gallagher has been at the helm for 30 years. In a recent 2025 profile of the executive, he exhibited energy and passion for running the business, remarking:

"Yesterday, I spent an hour and a half with 100 of our young people — how fun is that? Tomorrow I'll spend time with a client. This is what I love to do. As long as I'm capable, the board is stuck with me."

Despite this enthusiasm, he is in his 70s. If the Company fails to find a strong replacement before Pat Gallagher retires, continuity, performance, and returns could suffer.

We're encouraged that AJG is thinking ahead and has implemented a succession plan that positions two family members for future leadership:

• Patrick M. Gallagher (Pat Jr.'s son) was named Chief Operating Officer (COO) in January 2024, and the move is widely seen as positioning him as the next CEO. Patrick M. Gallagher joined AJG in 2000 and has rotated through various functions and leadership positions in the Company.
• Thomas J. Gallagher (Pat Jr.'s brother) was named President of the company in January 2024. Thomas J. Gallagher joined AJG in 1978 as a broker intern. He went on to hold various management positions, culminating in his role as the head of international brokerage operations since 2016 before his President appointment.

Who Is This Investment For?

Buying high-quality businesses at attractive entry points and holding them over a five-plus year investment period is for any patient investor. What makes AJG a particularly unique stock is the combination of the following three characteristics:

1. Resilient, recurring revenues coupled with a leading position in the mid-market
2. Strong leadership that has proven its mettle and kept operations even-keeled during macro and insurance-market gyrations, resulting in continually compounding earrings power
3. A very attractive entry point, born of temporary factors and misunderstandings about the business

AJG, a Financials stock, can therefore help an investor who has outsized AI, Magnificent 7, or high-multiple stock exposure, as it is a reasonably valued quality compounder. We think it deserves to be a roughly 7% position, higher than average in a 20-stock portfolio. Remember that if you're looking to add AJG to your portfolio, consider starting small (half of what you ultimately want to own) and strategically adding over time, especially on pullbacks in the stock.

Closing Thoughts

Despite being a $65 billion market cap, AJG is far from a household name for equity investors. That is not an indictment on its business quality though, and we actually argue that this is a top-tier business from a fundamental standpoint. It is resilient, capital light, and profitable. Led by a CEO that has grown up in the business with a deep bench, we think it can continue its run of profitable growth and explosive share-price performance.