Please ensure Javascript is enabled for purposes of website accessibility

Is Brookfield Asset Management Stock a Buy?

By Dave Kovaleski - Mar 6, 2020 at 9:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The alternative asset manager has managed to perform well, even through the current market correction.

While most stocks took a hit last week during the coronavirus-fueled sell-off and the S&P 500 is down for the year, some stocks just kept right on moving forward.

One of those stocks is Brookfield Asset Management (BAM -0.49%). As of March 4, Brookfield Asset Management was up about 8% year-to-date, a continuation of strong long-term performance. In 2019, Brookfield's stock price rose 50.72%, and over the past five years through Dec. 31, 2019, it has an annualized return of 11.58%. The S&P 500 is up 8.05% on an annualized basis in the same timeframe.

Can Brookfield Asset Management continue to outperform, and is it a buy right now? Let's take a look.

A computer screen showing bar graphs, numbers, and lines indicating market fluctuations.

Image Source: Getty Images.

Increase in fee earnings

Brookfield Asset Management is a Toronto-based alternative asset manager that makes money both from the fees it charges for asset management services and from its own investments. It invests primarily in property and real estate, renewable energy, infrastructure, and private equity through four master limited partnerships (MLPs): Brookfield Property Partners (BPY), Brookfield Infrastructure Partners (BIP 3.19%), Brookfield Renewable Partners (BEP 0.03%), and Brookfield Business Partners (BBU -4.42%).

In addition, the company is further diversified by its majority-stake acquisition last year of Oaktree Capital Group (OAK), a leading manager of credit assets. Oaktree continues to run as an independent corporation.

In the fourth quarter, earnings from fees were $362 million, up 59% from the fourth quarter of 2018. For the full year, fee income was $1.2 billion, up 37% from 2018. The fee income increase was driven by several factors, including robust fundraising in its flagship funds, strong performance by its MLPs, flows from new private fund offerings, and growth in newer distribution channels for high-net-worth investors, among others.

Currently, the company has 1,800 clients that include pension plans, wealth funds, insurance companies, and other institutional investors.

Funds from operations -- which is a measure of cash flow used by real estate investment trusts and private equity firms that accounts for depreciation and amortization -- was $1.2 billion in the fourth quarter, down from $1.3 billion the previous year. For the full year, FFO was $4.2 billion, down from $4.4 billion in 2018. The lower FFO total is due to decreased gains from dispositions in 2019 than the year before. Disposition gains in 2018 were $1.5 billion compared to $900 million last year.

Brookfield invested about $30 billion in new opportunities last year but maintains about $65 billion of available liquidity to deploy into new investments.

What sets Brookfield apart

Brookfield's diversified portfolio is what sets it apart from its competitors. The variety of segments it invests in enables the company to generate returns in all market cycles.

The benefits of that diversification have been put to the test this year, as the market has been volatile, particularly in the last week in February, when there was a massive sell-off over the spread of the coronavirus. Through it all, Brookfield is up about 8% year-to-date and has outperformed its competitors -- Carlyle Group (CG), Apollo Global (APO), Ares Management (ARES -0.99%), KKR & Co. (KKR -2.24%), and Blackstone Group (BX).

"We have historically performed well counter-cyclically," said Bruce Flatt, CEO and managing partner at Brookfield Asset Management, on the fourth-quarter earnings call in mid-February. "But now with Oaktree, we are even better positioned to capitalize on this situation, while continuing to invest the same way we always have with an emphasis on fundamental analysis and downside protection of capital."

The company is also developing some new, more specialized investment strategies that target geographic regions or specific asset types. "These more specialized investment strategies are very complementary to our existing business, easily meeting our guiding principles and will result in increased fee bearing capital," Craig Noble, CEO and managing partner of Alternative Investments, said on the call.

The stock has a valuation of 24 times earnings, but with its liquidity and diversified revenue streams, Brookfield Asset Management is well-positioned for continued growth, even through an economic downturn, and is a good buy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Brookfield Asset Management Inc. Stock Quote
Brookfield Asset Management Inc.
BAM
$44.47 (-0.49%) $0.22
Apollo Global Management, LLC Stock Quote
Apollo Global Management, LLC
APO
The Blackstone Group L.P. Stock Quote
The Blackstone Group L.P.
BX
Carlyle Group L.P. Stock Quote
Carlyle Group L.P.
CG
KKR & Co. Stock Quote
KKR & Co.
KKR
$46.29 (-2.24%) $-1.06
Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
BIP
$38.22 (3.19%) $1.18
Oaktree Capital Group, LLC Stock Quote
Oaktree Capital Group, LLC
OAK
Brookfield Property Partners Stock Quote
Brookfield Property Partners
BPY
Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
BEP
$34.80 (0.03%) $0.01
Ares Management Corporation Stock Quote
Ares Management Corporation
ARES
$56.86 (-0.99%) $0.57
Brookfield Business Partners L.P. Stock Quote
Brookfield Business Partners L.P.
BBU
$21.19 (-4.42%) $0.98

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.