The most patient stock market investors are often rewarded with compounded gains over time. Most financial experts advise you to buy quality, undervalued stocks and hold them for at least 10 years. Moreover, a bear market allows you a plethora of options to go bargain hunting and buy the dip.
Here is one such TSX stock I’d buy before the upcoming bull market.
Brookfield Asset Management stock
A leading global alternative asset manager, Brookfield Asset Management (TSX:BAM), has US$800 billion of AUM (assets under management) across private equity, real estate, credit, infrastructure, and renewables. It primarily aims to generate attractive risk-adjusted returns for its clients by effectively managing public and private investment products.
Brookfield Asset Management has access to large-scale capital, allowing it to make sizeable investments in premier assets across geographies and asset classes, diversifying overall risk significantly. These investments result in long-term contracted revenues and allow BAM to generate a stable stream of fee-based recurring income.
In the next five years, Brookfield Asset Management is looking to increase its fee-bearing capital to more than US$1 trillion. Moreover, equipped with an asset-light balance sheet and robust liquidity position, Brookfield has the financial assets to support growth in 2023 and beyond.
What’s next for BAM stock and investors?
Brookfield Asset Management ended the fourth quarter (Q4) of 2022 with distributable earnings of US$569 million, or US$0.35 per share. This number stood at US$2.1 billion for 2022. The company pays investors a quarterly dividend of US$0.32 per share, translating to a forward yield of more than 4%. It expects dividends to increase between 15% and 20% each year due to the continued expansion in fee-related earnings.
Brookfield Asset Management’s cash flow streams are extremely resilient. A majority of its US$418 billion fee-bearing capital is invested in private funds that have a perpetual life of more than 10 years. Its distributable earnings are primarily made up of annuity-like, fee-related earnings, making cash flows predictable.
In the last 12 months, BAM increased its fee-related earnings by 26% while fee-bearing capital was up 15%, despite an extremely challenging macro-environment. It raised US$93 billion in total capital last year and continues to see growth across its flagship funds.
In Q4, BAM also held “additional closes” for its fifth flagship infrastructure fund and sixth flagship private equity fund, raising US$22 billion and US$9 billion, respectively, to date.
In 2022, the company invested US$73 billion and monetized US$34 billion of these investments, ending the year with more than US$90 billion of deployable capital.
Is Brookfield Asset Management stock undervalued?
Brookfield Asset Management is among the largest TSX stocks, valued at a market cap of $17.5 billion. Analysts tracking the stock expect revenue to rise from US$3.76 billion in 2022 to US$5.6 billion in 2024. Comparatively, its adjusted earnings are forecast to improve from US$1.28 per share to US$1.8 per share in this period.
BAM is among the few companies to keep growing its top line and profits, despite an extremely sluggish economy. The company now expects fee-based earnings to touch US$4.5 billion and net carried interest income to stand at US$1.5 billion by 2027. Given these projections, Brookfield’s management forecasts its share price to range between US$71 and US$94 by 2027, indicating massive upside potential for investors.
