Brookfield (TSX:BN) stock is beginning to look like an interesting play for October 2023. The company’s most recent earnings release was very strong, with better-than-expected distributable earnings. Still, the stock declined in price last week, probably because of concerns over rising interest rates. The company’s recent earnings were quite good, but it is highly levered, making it sensitive to interest rate moves. As we’ll see shortly, it is nevertheless an enticing stock for investors to consider, albeit that’s one subject to certain risks.
Reason #1: It’s “cheaper” than at any other time in recent history
One of the reasons why Brookfield is enticing right now is because it is cheaper (in the valuation sense) than it has been at any other time in its recent history. Now, if you look at Brookfield’s stock chart, you will see that it has been at lower prices than its current one. However, the stock currently trades at 0.52 times sales and (according to some authors) 0.5 times net asset value. These are the lowest these multiples have been in recent history.
Reason #2: Its insurance business is growing rapidly
Another reason why Brookfield is enticing today is because it has a real growth business: insurance! Last quarter, Brookfield’s insurance subsidiary grew its distributable earnings at 245%. It’s still a fairly small company for the time being, but if it keeps growing as it scales, it could eventually move the needle for Brookfield as a whole.
Reason #3: It has unmatched deal-making abilities
Another advantage Brookfield has is its deal-making ability. Due to its great reputation, BN can get in on deals that no other asset manager can. Brookfield was able to buy a large stake in Oaktree Capital; the latter company said that only Brookfield’s deal would have ever been accepted.
Reason #4: It has earned praise from Howard Marks
Speaking of Oaktree: its chief executive officer (CEO) Howard Marks has praised Brookfield in very strong terms, saying that it is prestigious and well run. It’s not common for people in the asset management industry to speak about other firms so well, so the fact that someone as reputable as Marks has spoken so highly of Brookfield is a positive.
Reason #5: Bruce Flatt is passionate about his company
Last but not least, there’s the fact that Brookfield CEO Bruce Flatt is so passionate about his company. If you watch Brookfield Investor Day presentations, you can easily pick up on Flatt’s enthusiasm for his company and its operations. He speaks with pride about the company’s real estate portfolio. He has clear interest in growing the insurance business. He invests his own money into the company’s stock. None of these are quantifiable factors that can fit into a mathematical analysis, but they do show that Brookfield’s leadership has a vested interest in it succeeding. That’s more than a lot of companies out there can say, and it may bode well for Brookfield’s future.
Bottom line
Of course, with Brookfield stock, there is one key risk that must be kept in mind: interest rate risk. It has a lot of variable-rate debt, so more interest rate hikes by the central banks will reduce its profits. It’s something to keep in mind, but over the long run, it’s manageable. I’d say Brookfield is an intriguing stock to look at today.
