Better Buy: Brookfield (TSX:BAM.A) vs. ONEX (TSX:ONEX)

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) is an excellent growth stock but Onex Corporation (TSX:ONEX) is better priced.

Canada’s private equity space is probably its most interesting and underrated sector at the moment. Billions of dollars have been pouring into startups, real estate, and corporate buyouts in recent years, which has created immense value for Canada’s largest asset managers. 

Perhaps the most well-known beneficiary of this recent surge in private equity has been Brookfield Asset Management (TSX:BAM.A)(NYSE: BAM). Lesser known rival Onex (TSX: ONEX) has been making headlines this year as well. 

Both companies manage investments for institutions and high net-worth investors from across the globe. The key difference between them is size. With US$39 billion in assets under management and a market capitalization of $7.7 billion, Onex is nearly precisely one-tenth the size of Brookfield. 

However, size is only part of the story. For growth-seeking investors curious about the private equity sector, it’s worth taking a closer look at the underlying fundamentals and relative valuations of both companies to figure out which one is a better investment opportunity. 

Brookfield

Brookfield’s investment performance and business model is already well understood in investment circles. The company uses external capital raised for each of its subsidiaries in combination with internal capital to make investments. 

Over the past five years, the company’s assets under management have grown at an annualized rate of 16%. Meanwhile, the stock has more than doubled over the same period. 

Occasionally, the company makes major acquisitions to fuel its long-term growth trajectory. This year alone, it paid billions for Oaktree Capital Group and mortgage insurance company Genworth Financial, further entrenching its financial services. 

Confidence in Brookfield’s investment prowess has pushed the stock to an all-time high. It currently trades at 25 times annual earnings per share and 2.67 times book value per share. In other words, it seems priced to perfection.

Onex

By contrast, Onex seems to have slipped under the mainstream investor’s radar, even though it’s been around since the 1980s. 

The company reported a 27% gross internal rate of return (IRR) on private equity investments since inception. That excellent performance was reflected in the company’s stock price, which sextupled between the end of the great financial crisis in 2008 and 2017. 

However, since 2017 the stock has been gradually losing value. It’s down roughly 27% from its all-time-high. A dip in performance and erosion of assets under management seems to be the underlying cause. For 2018, the company reported a net loss of $796 million on account of client withdrawals. 

“We were … disappointed with the performance of our private equity portfolio during the year,” said Gerry Schwartz, chairman and CEO.

However, the downturn has made Onex much more attractive. The company’s stock trades at just 14% premium to book value per share and roughly twice annual earnings. 

The complexity of Onex’s business model and the growing concern about private equity valuations could be the reason why the stock is so beaten down. Unlike Brookfield, Onex isn’t a steady income stock with a hefty dividend. But for long-term investors looking for an undervalued opportunity in the asset management sector, Onex seems to beat Brookfield.  

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Brookfield Asset Management and BROOKFIELD ASSET MANAGEMENT INC. CL.A LV.

More on Dividend Stocks

senior man smiles next to a light-filled window
Dividend Stocks

This Stock Pays You a 4.7% Dividend Every Single Month

Sienna Senior Living's seemingly safe 4.7% monthly dividend yield, eligible dividend tax perks, and strong growth potential appear attractive today

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Most Canadians Pick the Wrong Investing Account First: Don’t Be One of Them

Your first investing account matters far more than your first stock. Compare the TFSA, RRSP and FHSA for 2026 and…

Read more »

money goes up and down in balance
Dividend Stocks

Building a Retirement Paycheque: Where Each Dollar Comes From

Thinking about retirement? Find methods to create passive income to cover daily expenses and enhance your financial freedom.

Read more »

Three children jump on an outdoor trampoline
Dividend Stocks

The RESP Deadline is December 31: Ottawa Adds 20% for Free

An affordable RESP contribution can attract a 20% basic grant, with December timing, catch-up limits, and the child's age shaping…

Read more »

jar with coins and plant
Dividend Stocks

Dividend Stocks or Annuities for Retirement Income?

Here's how Canadian dividend stocks and annuities compare as retirement income sources

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

Is TELUS a Good Stock to Buy After Finally Cutting its Dividend?

TELUS cut its dividend 55%, but still offers you a tasty dividend yield of 6.3%. Is the Canadian blue-chip stock…

Read more »

Real estate investment concept with person pointing on growth graph and coin stacking to get profit from property
Dividend Stocks

Mortgage Rates Are Rising: The Bank of Canada Hasn’t Moved

Fixed mortgage rates can rise without a central-bank move, adding real monthly costs while also testing lenders' funding and credit…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Structure My $14,000 TFSA for Constant Income

If you have $14,000 saved in your TFSA, here is one easy investment strategy to earn $50 of tax-free monthly…

Read more »