Is it Too Late to Buy Brookfield Stock?

Brookfield Corp (TSX:BN) releases earnings today.

| More on:
consider the options

Image source: Getty Images

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has positions in Berkshire Hathaway and Brookfield. The Motley Fool recommends Berkshire Hathaway, Brookfield, Brookfield Asset Management, Brookfield Corporation, Brookfield Renewable, and Microsoft. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Increasing yield
Dividend Stocks

2 High-Yield Dividend Stocks to Buy as They Bounce

These top dividend stocks still look cheap.

Read more »

ETF chart stocks
Dividend Stocks

The Best Canadian ETFs $100 Can Buy on the TSX Today

These three ETFs are the perfect options for investors looking for growth, income, and a base to hold long term.

Read more »

money cash dividends
Dividend Stocks

TFSA Pension: How to Earn $4,750 Per Year in Tax-Free Income

Here's why the TFSA should be an integral part of your retirement savings strategy.

Read more »

Man considering whether to sell or buy
Dividend Stocks

TELUS Stock: Buy, Sell, or Hold?

TELUS (TSX:T) stock has seen operational improvements but still remains down on a year-over-year basis. So, is it worth it?

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

Retirees: 2 Top TSX Dividend Stocks That Still Look Oversold

These great Canadian dividend stocks now offer high yields.

Read more »

edit Balloon shaped as a heart
Dividend Stocks

2 Dirt-Cheap Retail Stocks Fit for Dividend Lovers

Metro (TSX:MRU) and another great retailer that could be ripe for buying in May 2024 for the next three years.

Read more »

Dividend Stocks

Bull Market Buys: 1 Magnificent Stock to Own for the Long Run

This one cyclical stock could be the best long-term option for investors, especially while shares still offer a steal of…

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

Outperform the TSX With This Lucrative Dividend Stock

Hydro One is a dividend stock that should beat the TSX index due to a widening earnings base and rising…

Read more »