Stocks have been riding a strong bull market over the past year. The S&P 500 is up more than 25% over the last 12 months. It could have further to run as emerging growth catalysts like artificial intelligence (AI) could give this bull market even more power to continue rallying.
Most stocks have already risen sharply during this bull market. However, Brookfield Renewable (BEPC -1.73%) (BEP -1.60%) and its sibling Brookfield Infrastructure (BIPC -0.85%) (BIP -1.25%) stand out because they haven't yet taken flight. Their shares are down double digits over the past year, even though powerful catalysts are driving brisk growth, which should continue. That makes them great stocks to buy for the long run amid the current bull market.
Powered by the decarbonization megatrend
Brookfield Renewable is growing at a respectable clip. The leading global renewable energy company's funds from operations (FFO) per share rose about 8% in the first quarter. However, it expects growth to accelerate to a 10%+ annual pace.
Several factors power that view. It expects inflation-linked rate increases and margin enhancement activities to grow the FFO of its legacy assets by 4% to 7% per year through at least 2028. Meanwhile, it sees organic development projects adding another 3% to 5% to its FFO per share each year during that time frame. The company recently enhanced its ability to deliver robust organic growth by signing a contract to develop renewable energy for Microsoft.
On top of those organic drivers, Brookfield believes M&A activities will easily push its FFO growth rate above 10% each year. The company has been strengthening its ability to capitalize on future opportunities by recycling capital ($1.3 billion of asset sales already this year). It continues to find attractive investments to redeploy this capital. For example, it recently agreed to invest $500 million for a controlling interest in Indian renewable energy developer Leap Green Energy.
With its share price down double digits over the past year, Brookfield Renewable trades at a very attractive price for a company growing at a double-digit rate. It sells for less than 20 times its FFO, which is much cheaper than the broader market average of nearly 24 times earnings.
Two strong growth tailwinds
Brookfield Renewable's infrastructure-focused sibling, Brookfield Infrastructure, is also growing fast. It grew its FFO by 11% in the first quarter, powered by strong organic growth (7%) and the impact of its accretive capital recycling strategy.
Brookfield Infrastructure sees a trio of organic drivers powering 6% to 9% annual FFO per-share growth over the next several years. It's benefiting from inflation (inflation indexation is driving 3% to 4% FFO per share growth). It's also benefiting from its ability to reinvest its retained cash flow after paying dividends into high-return organic expansion projects. In addition to its strong organic growth drivers, Brookfield Infrastructure expects its capital recycling strategy to push its FFO growth rate into the double digits.
The company has a dual investment focus aimed at capturing two of the biggest trends this decade: digitalization and decarbonization. Brookfield has invested heavily in building a global data center platform, which is cashing in on the growth of cloud computing and AI. It expects the FFO of its data center platform to grow by two-and-a-half times over the next three years. It's also helping fund the buildout of a couple of new semiconductor manufacturing plants. The company is also investing money in energy transmission and residential decarbonization. It expects these investments to fuel its growth for years to come.
Brookfield Infrastructure has also been selling mature assets to recycle that capital into higher-returning new investments. It expects to generate $2 billion in proceeds this year ($1.2 billion of which it had secured at the end of the first quarter). The company is working through a large pipeline of potential M&A opportunities that it believes could deliver strong returns. That would enhance its ability to deliver double-digit FFO per share growth in the coming years.
Brookfield Infrastructure trades at an attractive valuation despite its robust growth. Given the double-digit decline in its stock price, it sells for about 12 times FFO. That's an incredible bargain for such a fast-growing company.
High-powered growth stocks
Brookfield Renewable and its sibling Brookfield Infrastructure expect to grow their FFO per share at double-digit rates for several years. They're capitalizing on a couple of powerful growth trends. Despite their strong growth profiles, they haven't yet participated in the current bull market run, which has them trading at attractive valuations. That makes them look like great buys right now. They could deliver high-powered returns as the bull market run continues.
