Intuitively, you’d think that stocks that have been going up are the best stocks to buy. After all, a trend’s a trend: Shouldn’t a winner remain a winner?
Not necessarily?
Even chart readers will tell you, “The trend is your friend, until the end, when it bends.” What this saying is getting at is that fundamental changes in the nature of reality can cause long-term trends to reverse.
Imagine, for example, you have a company that is growing its profit 20% each and every year, rising the same amount in the market. This goes on for decades. Now imagine it turns out that the company has been committing massive accounting fraud, and actually has no profit at all. In this scenario, a long-term trend of stock price appreciation would likely reverse.
The same can happen with a stock that has been going down – and when it does happen, it tends to create great fortunes. Stocks that go down in price while delivering excellent earnings and operational performance usually rise dramatically in price afterward, rewarding shareholders who bought low. In this article, I’ll explore one Canadian stock that has the potential to do just that.
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Brookfield Asset Management
Brookfield Asset Management (TSX: BAM) is a Canadian alternative asset management company widely considered to be the best-in-class in its industry. It manages funds for high-net-worth investors and other institutions (e.g., pension funds), who give it massive amounts of money to invest, which it earns fees on. It has over a trillion in assets under management and raised an additional $67 trillion this year alone. The fact that it is raising so much money gives it good prospects of continuing to enjoy profit growth well into the future.
Sources of Brookfield Asset Management’s success
There are two factors that make Brookfield Management successful:
- It has a sterling reputation, being praised by top investors like Lou Simpson, Chuck Akre, Bill Ackman, and Mohnish Pabrai.
- It has deep connections with high-net-worth investors and financial institutions, which enable its massive deals with (e.g.) pension funds and the government of Qatar.
The superinvestor Mohnish Pabrai once said that Brookfield Asset Management had the “best asset management DNA” of all companies, and he was probably right. The company’s deep relationships and consistent fundraising success argue for an enterprise that will make consistent money well into the future.
Recent performance
One thing is certain:
BAM has been performing well recently. In the trailing 12-month period, the company grew its revenue 22%, its earnings 15%, and its operating cash flow 92%. Its profitability metrics were incredible, too. The asset manager had a 71% gross margin, a 50% net income margin, and a 57% free cash flow margin. This is the very definition of a growing, thriving business. And it’s passing the prosperity on to shareholders, too. BAM has a solid 4% dividend yield, meaning that those who buy BAM stock share in the company’s fortunes to a very substantial degree. So, Brookfield Asset Management is a company worth considering an investment in.
