Brookfield (TSX: BN) is one of Canada’s buzziest stocks. As the owner of some of the world’s most valuable assets, it has its fans (and detractors) far beyond Canada’s borders. The company’s chief executive officer, Bruce Flatt, is well known for his media appearances in the U.S., a key market for many of his deals.
Speaking of which, Brookfield Renewable Corporation (TSX: BEPC), which is 60% owned by Brookfield, just signed history’s biggest clean power deal with Microsoft. The detail entails BEPC selling 10.5 gigawatts of power to Microsoft over the contract duration. It triggered a major rally in both Brookfield Renewable and Brookfield Corp shares when it was announced.
The question is, is Brookfield stock a buy today? Although the Microsoft deal is a big one, it’s not clear how much profit it will generate for BEPC and then pass to BN. There are many question marks here. Fortunately, there are enough simple financial reasons to invest in Brookfield Corp today that you don’t need to figure out the exact profit impact of the Microsoft deal to value the shares. It is still not too late to buy BN, even after the stock’s impressive run-up.
Still at a discount to net asset value
The reason why a lot of value investors have been buying Brookfield stock over the last year is because it trades at a discount to its net asset value (NAV). Net asset value is like book value: it’s assets minus liabilities. In the case of NAV, it refers to the net assets of a fund or exchange-traded fund.
Many of Brookfield’s companies are structured like investment funds. Brookfield owns stakes in these as well as actual Brookfield funds and real estate investment trusts (REITs). It reports the combined equity it has in all of these, minus Brookfield’s corporate-level debt, as NAV.
Bruce Flatt says that the U.S. version of Brookfield is worth US$74 per share ($102.2), going by the net asset value. I haven’t been able to recreate Flatt’s numbers using the company’s financial statements. However, I did find that Brookfield traded at a discount to the NAV of various partnerships plus the market value of Brookfield Asset Management. Adding those two together gives you a justifiable price close to double BN’s current price if you assume that BAM is fairly valued.
Going by NAVs, it would appear Brookfield stock has a ways to run yet.
A fast-growing insurance business
Another thing Brookfield has going for it is a fast-growing insurance business. In 2023, that business grew its earnings by 90%! Of course, a lot of that was because it acquired American Enterprise Group. It was not organic growth. However, Berkshire Hathaway released its earnings over the weekend and did very well. Its release showed phenomenal growth in insurance — that may bode well for Brookfield’s results.
Earnings set to come out today
We won’t have to wait long to see how Brookfield’s insurance business, NAVs and other items turned out in the second quarter, as the company’s earnings release comes out today. In fact, it may be published by the time you read this. Analysts are expecting earnings to grow 8.4%, so if Flatt and company do better than that, their stock might rise in the market. On the whole, I would not say it is too late to buy BN stock.
