Is Brookfield Asset Management Inc. Still a Good Investment?

Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM) is a massive, diversified asset management firm that should be in your portfolio, even at these prices.

| More on:

Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM) delivered strong second-quarter earnings in August, but the stock pulled back anyway, providing a great opportunity to pick up shares. They reached a low of $47.11, the lowest they’ve been since the beginning of 2017. Since then, though, shares are up over 12.5%, leaving investors questioning if Brookfield is still a good investment.

While it’s true shares are certainly more expensive, I remain bullish on the company’s long-term prospects and believe investors should use Brookfield as a core portfolio holding. Few other companies can give you exposure to such a diverse bag of assets like Brookfield, and the second-quarter results show that.

Assets under management continue to rise. In total, the company is sitting on US$257.5 billion, which is up 5.8% from a year prior. When you have that much on your book, you can get creative in ways you or I could only dream of. And when you’ve got solid management like Brookfield does, that creativity can be lucrative.

CEO Bruce Flatt is a value investor through and through. And when value investors realize that an asset is overvalued, they take the necessary step to sell. Although value investors are taught to buy and hold, it’s even smarter to recognize when an asset is overvalued and sell it, perhaps buying again when that same asset has become undervalued. And that’s exactly what Flatt is doing.

In the Q2 letter to shareholders, Flatt said, “we sold a New York office property for $2.21 billion, a London office building for £410 million, and various other assets at attractive prices.” But Brookfield didn’t just sell. “In total, we invested US$9 billion across the business during the quarter. This included a regulated gas transmission business, a road fuel distribution company, a water distribution business, and various real estate properties globally.”

In essence, Brookfield sells an asset when it is overvalued and then takes that cash to buy other assets that the company views to be undervalued. This recycling of capital is how Brookfield can continue to generate strong returns.

Brookfield also deploys a strategy of spinning off publicly listed subsidiaries when it owns enough of that particular asset class, including renewable energy, infrastructure, and real estate. Brookfield gains two benefits from these relationships.

First, Brookfield is an investor, just like you and me. So, it earns dividends. These subsidiaries deliver over US$1.2 billion in cash dividends on an annual basis.

Second, Brookfield earns fees from these firms, since Brookfield is the asset manager. Its annualized base fees across all the subsidiaries totaled US$515 million, up 21%. On top of that, it earned an additional US$203 million in incentive distribution rights and performance fees.

Ultimately, the thesis for investing in Brookfield is simple. It has a massive portfolio of assets spread across a variety of different sectors. It buys and sells when assets go from undervalued to overvalued, providing a great recycling effort. And, along the way, it earns dividends and management fees to add even more cash to its books.

It may not be as cheap as it was in August, but I still believe investors would be smart to add Brookfield Asset Management to their portfolios.

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.

The Motley Fool owns shares of BROOKFIELD ASSET MANAGEMENT INC. CL.A LV.

More on Investing

growing plant shoots on stacked coins
Dividend Stocks

4 Ways to Grow $100,000 Into $1 Million in Retirement Savings

Anyone can build a million-dollar retirement portfolio. Here are four ways you could practically grow $100,000 to $1 million.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Steer Clear: This Stock Spells Trouble

A newly listed cannabis stock is outperforming in 2024 but investors should stay clear to avoid trouble and losses.

Read more »

Red siren flashing
Energy Stocks

Buy Alert: 4 Reasons Why TC Energy Stock Is a Must-Own Now

A large-cap energy stock is a strong buy today for four compelling reasons.

Read more »

Shopping and e-commerce
Tech Stocks

Is Lightspeed Commerce Stock a Buy Now?

Despite the near-term weakness, I am bullish on Lightspeed due to its solid fundamentals, healthy growth prospects, and attractive valuation.

Read more »

A shopper makes purchases from an online store.
Dividend Stocks

3 Reasons to Buy TFI Stock Like There’s No Tomorrow

TFI stock (TSX:TFII) had a hard 2023, but now it's set up for a solid 2024, with an acquisition that…

Read more »

Dividend Stocks

5 Secrets of TFSA Millionaires

These lesser-known secrets can help you set up the perfect long-term portfolio and achieve a million-dollar TFSA!

Read more »

Canadian stocks are rising
Dividend Stocks

iShares S&P/TSX Capped REIT Index ETF (TSX:XRE): Why I Like this ETF Better Than a Rental Property

XRE is a great ETF for gaining exposure to the Canadian real estate sector.

Read more »

analyze data
Dividend Stocks

How to Build a Powerful Passive-Income Portfolio With Just $20,000

These fundamentally strong TSX stocks have paid and increased their dividend in all market conditions. Add these stocks to build…

Read more »