Why Brookfield Asset Management Inc. Could Win Big From the Oil Slump

Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM) is perfectly positioned to take advantage of the oil industry’s woes.

| More on:
The Motley Fool

These days, you’ll find plenty of stories about who benefits from oil’s collapse. American consumers, who will save money on gasoline, come to mind. Businesses in Ontario and Quebec benefit from a lower Canadian dollar. Auto companies must be licking their lips, figuratively speaking.

But there’s another company that could profit very nicely, and for a long time: Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM).

Birch Mountain

Back in 2007, Birch Mountain Resources was sitting on a limestone deposit valued at $1.6 billion. Unfortunately, the company was running into financial trouble, and did not have enough capital to develop the deposit. Brookfield stepped in with $50 million in financing, but Birch Hill eventually defaulted on this debt. As a result, Brookfield gained control of Birch Mountain, along with that $1.6 billion deposit.

Birch Mountain’s former shareholders have sued Brookfield in response, led by former hockey star Lanny McDonald. The outcome of the case is uncertain. But here’s what we know already: Birch Mountain’s former shareholders suffered big losses, and Brookfield made a big gain.

History tends to repeat itself

This is not the only time that Brookfield has done such a thing. The company made a handsome profit from Stelco, a troubled steel company. Brookfield also owns the Atlantis hotel resort in the Bahamas, having acquired it when the former owner ran into financial trouble.

You see a pattern here? When a company has a great asset, but runs into financial trouble, Brookfield is able to take advantage. You can call it unfair all you want. But Brookfield is very good at what it does.

Oil companies: the perfect candidates

There’s no denying that oil companies are struggling these days, and some are in especially bad shape, thanks to high debt levels. Many of these producers are sitting on vast oil reserves, but don’t have enough capital to take advantage. Sound familiar? This is what Birch Mountain was facing in 2007.

I wouldn’t expect Brookfield to make any big moves right away. The oil slump is still in its early stages. But as it persists, more companies will run into financial trouble.

And Brookfield will be perfectly positioned to take advantage. The company currently has roughly $5 billion in “Core Liquidity” and about $8 billion in uninvested client capital. I would expect some of that money to go towards the energy sector.

And this is only the beginning

Longer term, there are other reasons to like Brookfield. It has a fabulous track record and plenty of investment opportunities around the world. Better yet, the company has been attracting lots of clients, which has led to big growth in fee income.

The company hopes to have a $150 stock price by 2024. There’s every reason to believe that’s possible.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Young Boy with Jet Pack Dreams of Flying
Investing

Former Domino’s Pizza CEO Joins Forces With Restaurant Brands. Is the Stock Set to Skyrocket?

Patrick Doyle turned Domino's around starting in 2010, achieving tremendous results. What's in store for QSR stock?

Read more »

Hourglass projecting a dollar sign as shadow
Investing

New Investor? If You Do Nothing Else With Stocks, Learn This Lesson

Time is the most powerful thing on an investor's side. Here are two powerful ways to use it.

Read more »

lab worker inspects test tubes
Dividend Stocks

Warren Buffett’s Buying This Passive Income Stock

Berkshire began buying this chemical company earlier this year and hasn't stopped.

Read more »

Arrowings ascending on a chalkboard
Tech Stocks

Why I Think Nuvei Stock Has Market-Beating Potential

Given its growth initiatives, expanding addressable market, and attractive valuation, I believe Nuvei has the potential to outperform the broader…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Need Passive Income? Turn $5,000 Into $23.85 Every Month

If you're looking for passive income that comes in like a paycheque, this dividend stock provides that to you along…

Read more »

A worker drinks out of a mug in an office.
Metals and Mining Stocks

5 Things to Know About Nutrien Stock in December 2022

Trading at heavily depressed multiples, Nutrien stock is a great opportunity, as it delivers solid financial results and an optimistic…

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Shopify Stock Rose 15% in November: Is it a Buy Today?

Shopify (TSX:SHOP) stock rallied 15% this month but is still down 69% year to date, so should investors worry that…

Read more »

Man holding magnifying glass over a document
Investing

The 3 Most Oversold TSX Stocks to Watch Before 2023

Many oversold stocks are merely victims of market circumstances and potentially profitable bargains when they seem downtrodden.

Read more »