When you’re looking for investments, it pays to seek out stocks that are attracting attention from major investors. When smart money buys stock, it bodes well for its prospects. It doesn’t mean the stock can’t lose — sometimes, even “in the know” people get things wrong. However, the attention of major investors is positive. In this article, I will explore one TSX stock I would bet on — one I am, in fact, betting on — that’s attracting attention from major investors.
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Brookfield
Brookfield Corp (TSX:BN) is Canada’s largest non-bank financial company. If you include the value of all its partially-owned subsidiaries, it might well be the largest enterprise in the country.
Brookfield stock has been attracting attention from some major investors lately. Chief among those would be Pershing Square Holdings, which accumulated a large position in the company at the start of last year. On April 25, Pershing Square put out a research note that explained its rationale for investing in Brookfield. The reasons given included undervaluation and quality management. Other notable investors who have owned or partnered with Brookfield include Mohnish Pabrai and Howard Marks.
Valuation
Speaking of valuation…
Brookfield stock is cheap, according to several measures.
First, it trades at a substantial discount to its sum of the parts valuation. If you take the market value of Brookfield’s assets and subtract the book value of its debt, you get a figure lower than Brookfield’s market cap. This is somewhat similar to a price-to-book ratio below one, although it incorporates more volatile market prices in asset values.
Second, some of Brookfield’s multiples are low. For example, it trades at 17.5 times distributable earnings (DE), 0.87 times sales and 1.8 times book.
Third and finally, the company has growth opportunities in front of it that aren’t reflected in the market price. They include billions worth of un-drawn capital at Brookfield Asset Management that will begin collecting fees when deployed.
Growth prospects
As alluded to in my third point about valuation, Brookfield has good growth prospects. Its trailing 12-month growth was quite good, with DE up 15% and free cash flow (FCF) up 73% year on year. Further, there are reasons to think that the growth will continue. Brookfield Renewable Partners recently scored a massive deal with Microsoft; Brookfield Asset Management has un-drawn capital that will eventually start earning fees; Brookfield Insurance recently completed accretive acquisitions. The list just goes on and on. So, Brookfield’s growth has historically been good, and there is reason to think that the growth will continue.
Foolish takeaway
Taking everything into account, Brookfield stock looks well positioned today. It’s cheap, it’s growing, and it has massive amounts of investor capital to play with. The future looks bright for Brookfield and its publicly traded subsidiaries. It’s not surprising that the stock is attracting so much attention from major investors. With all of the advantages it has over the competition, the real surprise is why it hasn’t attracted even more attention. I shouldn’t complain, though, as too much attention too soon would get rid of the buying opportunity!
