What stock would you hold, if you could hold just one?
While it’s not a good idea to hold just one stock, it is a good idea to ask yourself this hypothetical question. There are several reasons for this:
- Analyzing stocks thoroughly enough to potentially feel confident in a single stock portfolio increases your understanding of your holdings.
- The stock with which you’d answer the above question should be the most heavily weighted stock in your portfolio.
Personally, I do not own a single stock portfolio. I have some stocks I’m confident enough to hold at a heavy weighting, but I also appreciate the benefits of diversification. Nevertheless, I know which stock I would own if I could own only one. In this article, I will explore this stock and my reasons for liking it more than any other in my portfolio.
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Brookfield
Brookfield Corp (TSX:BN) is a Canadian financial conglomerate best known for its activities in asset management and private equity. It is somewhat less well known for its involvement in insurance, renewable energy and infrastructure – though its holdings in those sectors are massive as well. BN stock has had a stellar run under its current CEO, Bruce Flatt, under whose management it has compounded at about 15% annualized.
A quality brand
One of the biggest advantages that Brookfield has going for it – one that matters a lot in the world of asset management – is a quality brand. The company is highly respected, having drawn praise from professional investors like Mohnish Pabrai and Howard Marks. It has also been trusted to manage money by some major international players, including the Government of Qatar and several U.S. pension funds. In asset management, relationships and reputation are everything. Going by the accolades it has earned and funds it has been entrusted with, Brookfield has both of those assets in spades.
Big deals
One reason why I’m bullish on Brookfield in the near term (I’m bullish in both the near and long terms) is the fact that the company has big deals in the works that should drive considerable growth.
First, the company’s subsidiary Brookfield Asset Management (TSX:BAM) has over $100 billion in committed but uninvested capital. As that capital is drawn down and invested, it will start generating fees. So, BAM’s fee-related earnings are virtually guaranteed to increase in the year ahead.
Second, another Brookfield subsidiary, Brookfield Renewable Partners (TSX:BEPC)(TSX:BEP.UN), has scored deals to supply renewable power to Microsoft and Alphabet (“Google”). The Microsoft deal is for 10.5 gigawatts and is worth $10 billion. The Google deal is worth about $3 billion. Both will move the needle massively for Brookfield Renewable, and more modestly for its parent, Brookfield Corp.
Now, looking at the two points above, you might think, “hey, BAM and Brookfield Renewable are both publicly traded in their own right? Why not buy those for pure play exposure to the most intriguing things happening in the Brookfield ecosystem?” You could do that, and I personally own a little BAM stock along with BN. However, when we look at valuation factors, a clear edge for Brookfield Corp becomes apparent.
A modest valuation
The reason I prefer Brookfield Corp to BAM or BEPC/BEP.UN, overall, is because it trades at a discount to its sum-of-the-parts valuation. If you sum up the market values of all the Brookfield entities that Brookfield owns, plus its real estate portfolio and stock portfolio, then subtract the value of BN’s corporate-level debt from all that, you end up with a sum that is considerably larger than Brookfield’s current market cap. This indicates that BN is undervalued, and that by buying BN, you get your BAM and BEPC/BEP.UN holdings at a discount. So, BN is my current favourite security in the Brookfield ecosystem.
