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 (BN 1.81%). 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.
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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 -0.80%), Brookfield Renewable Partners (BEP 0.19%), and Brookfield Business Partners (BBU 0.79%).
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 -0.08%), KKR & Co. (KKR 0.71%), 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.
