Warren Buffett famously said that investors should buy the stocks of great companies and hold them forever. At the Motley Fool, we take Buffett’s advice to heart, and believe in the power of a long-term perspective when it comes to investing.
Although everyone likes to find a good value stock, sometimes it is better to buy the stock of a great company at a reasonable price, as opposed to the stock of a mediocre company at a good discount. The stocks of businesses with sustainable, excellent performance make the best buy-and-holds.
For this reason, new Canadian investors should focus on the stocks of companies with excellent fundamentals, understandable business models, essential products and services, a wide economic moat, solid financial ratios, and good management.
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Brookfield Asset Management
My beginner stock pick today is Brookfield Asset Management (TSX:BAM.A)(NYSE: BAM). New investors can think of BAM as a holdings company with investments in a diverse range of interests.
If you want to spread your bet among real estate, renewable power, infrastructure, venture capital, and private equity, you could literally do it all just by buying BAM.
When you buy shares of BAM, you essentially have your capital managed by one of the best asset management firms worldwide, being put to use in a variety of ventures.
Valuation
BAM is solid enough of a company that I would not worry about trying to time a good entry price. However, new investors should always be aware of some basic valuation metrics so they can understand how companies are valued and what factors influence their current share price.
Currently, BAM is extending gains since Monday and is trading at $70.59, which is extremely near the 52-week high of $79.04. In the current fiscal quarter, BAM’s 52-week low is $54.27.
BAM current has a market cap of 106.62 billion with approximately 38.81 billion shares outstanding. This gives it an an enterprise value of $261.75 billion and an enterprise value to EBITDA ratio of 13.61, similar to sector peers.
For the past 12 months, the price-to-earnings ratio of BAM was 30.54, with a price-to-free cash flow ratio of 36.42, price-to-book ratio of 2.48, and book value per share of approximately $27.66.
BAM is currently covered by a total of 21 analysts. Of them, 12 have issued a “buy” rating, while the other nine have issued a “sell” rating. This is generally a considered a bullish sign.
BAM has a Graham number of $37.41 for the last 12 months, a measure of a stock’s upper limit intrinsic value based on its earnings per share and book value per share. Generally, if the stock price is below the Graham number, it is considered to be undervalued and worth investing in.
Is it a buy?
Despite its current share price being more or less fairly valued, long-term investors should consider establishing a position if they have the capital. Over the next 10-20 years, your entry price won’t matter as much if BAM continues its strong track record of growth and profitability. Consistently buying shares of BAM, especially if the market corrects can be a great way to lock in a low cost basis.
