Canadians should jump on the opportunity to invest in a company like Warren Buffett’s Berkshire Hathaway. Early investors of Berkshire stock would have created generational wealth. Every $100 invested in the quality stock in 1964 would have turned into more than $274 million!
That’s more than 50 years of compounding. The company is much bigger now with a market capitalization of about US$548 billion. Here’s a younger company with a market cap of US$57 billion that has many commonalities with Berkshire and will likely be able to grow your wealth faster!
Since 2008, Berkshire stock has delivered total returns of 7.1% per year against Brookfield Asset Management’s (TSX:BAM.A)(NYSE:BAM) 8.5%. By buying BAM shares during dips, investors can get even greater annualized returns of more than 12%.
What’s great about the growth stock?
Warren Buffett is a value investor by heart. So is Brookfield Asset Management, which seeks quality assets in distress or reasonably valued assets that it can optimize operationally.
BAM is an alternative asset manager that specializes in real assets across real estate, renewable power/infrastructure, private equity, and credit. Unlike Berkshire, which takes on a decentralized management approach, BAM is involved in the operations of the businesses as a manager. In fact, its decades of experience has accumulated into operational expertise, which gives it a competitive advantage.
Additionally, the company has an edge by being able to seek the best investment opportunities around the globe as it operates in more than 30 countries. It invests large amounts of its own money in the real assets it manages.
Its track record of 12-15% long-term returns keeps institutional and retail investors coming back for more as well as attracts new capital. In the last 10 years, BAM’s institutional investor base has skyrocketed from about 90 clients to 2,000. This investor base will continue expanding.
Thanks to Brookfield Asset Management’s ever-higher fee-bearing capital, which is at US$277 billion now, its fee-related earnings (before performance fees) compounded by 25% annually over the past five years to US$1.2 billion. This aligns roughly with the 24% growth rate of its assets under management.
Brookfield rains cash
Like Berkshire, Brookfield Asset Management always has lots of cash on hand. The business is set up that way. Its portfolio primarily generates consistent cash flow from contracted assets (real estate, renewable power, infrastructure). It also earns management and performance fees.
Moreover, it has the relationships and track record to easily raise funds for large-scale, multi-billion investments. Often, it’ll have little to no competition for these acquisition opportunities, especially in today’s distressed, macro environment.
Currently, BAM has about US$16 billion of core liquidity and an additional US$61 billion of third-party fund commitments it can call upon.
The Foolish takeaway
Brookfield Asset Management stock has rallied about 15% in the last five trading days. However, the stock is still moderately undervalued with 12-month upside potential of approximately 12% and is more than 15% below its 52-week high. As Warren Buffett would say, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
About 10-20% of the wonderful company’s business has been impacted by pandemic-triggered economic shutdowns this year. Therefore, if these shutdowns occur again in the geographies it operates, the stock can experience another crash. Canadians should jump on the buying opportunities whenever the stock sells off.
BAM is a strong candidate as a core growth holding in a diversified stock portfolio. Currently, the stock yields 1.3%. This year also marks the ninth year of its dividend-growth streak.
Explore this list of top stocks that can outperform like BAM!
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Fool contributor Kay Ng owns shares of Berkshire Hathaway (B shares) and Brookfield Asset Management. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Brookfield Asset Management. The Motley Fool recommends BROOKFIELD ASSET MANAGEMENT INC. CL.A LV and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares).