Are you considering investing in Canadian bank stocks like TD Bank (TSX:TD) or Bank of Montreal?
If so, you’re making a natural choice. Canada’s banks are some of the best businesses in the country, being defined by strong risk management and considerable protection from outside competition. They’ve performed well over the long term.
Indeed, the TSX banks are so strong that they make up a disproportionate share of the TSX’s market cap. Two of the three biggest Canadian companies (66%) are banks!
Personally, I like TSX banks enough that I currently hold TD Bank as my first or second-largest position (it was by far my largest position as recently as two months ago, but I sold about 35% of my shares in July). Despite that, I wouldn’t actively be looking to add to my TD position right now – nor would I be interested in buying BMO shares. No, there’s another TSX financial – a non-bank financial – that I’d much rather buy in August. In the ensuing paragraphs, I will explore that stock in detail and explain why I’m considering adding to my position in it.
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Brookfield Asset Management
Brookfield Asset Management (TSX:BAM) is a Canadian asset management company. Like TD and Bank of Montreal, it is a financial services company. However, unlike those companies, BAM is not a diversified bank, but rather a pure play asset manager. Its sole business activity is running investment funds for institutional clients like pension funds and governments. Its parent company, Brookfield Corporation, is a diversified financial that is similar to the big Canadian banks in some ways, though even it isn’t involved in banking as such.
Brookfield is Canada’s premier non-bank financial, and Brookfield Asset Management is its investment management subsidiary. Due to a recent spinoff, the pure play asset manager can be bought as a standalone security. In a Canadian financial sector dominated by conventional banks, that fact makes BAM distinctive.
Brookfield Asset Management’s competitive advantage
BAM has a massive competitive advantage in the form of a great reputation. The company is well known and respected by many of the smartest people on Wall Street. Past shareholders and partners have included people like Lou Simpson, Bill Ackman, Mohnish Pabrai, and Howard Marks. Asset management is all about relationships, and this laundry list of well-connected shareholders and partners gives BAM an edge in finding new clients.
Growth and profitability
Brookfield’s competitive strengths have contributed to stellar financial results from the company. In the trailing 12-month period, BAM’s revenue increased 31.9%, its earnings increased 14%, and it had net and FCF margins of 47% and 49%, respectively. So, the company’s expertise in running alternative asset funds is leading to concrete financial performance.
Valuation
Despite its strong performance, BAM is not an especially pricey stock. Going by reported earnings, BAM trades at about a 30 times P/E ratio. That might appear high, but note the high growth, and also the fact that this is an asset management business, which may be evaluated better by distributable earnings (DE) rather than reported earnings. If we use DE instead of reported earnings, then BAM’s P/E ratio shrinks to 21.8 – not dirt cheap, but not extraordinarily high by the standards of the financial services sector in 2026.
The bottom line
The bottom line on TSX financials today is that the most obvious ones – big banks like TD and BMO – are starting to look pricey relative to their potential future earnings. They’re still worth holding, but non-bank financials like BAM offer an exciting alternative. I’d rather invest fresh funds into the latter rather than the former.
