I own more than 100 stocks. I like that diversification level because it helps reduce risk. It also allows me to make small bets on higher-risk companies with high reward potential.
However, if I could buy and hold only one stock, I'd choose Brookfield Corporation (BN 2.06%). The global investment firm has a superior track record of growing shareholder value, which seems likely to continue.
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Like Berkshire, only better
Brookfield Corporation shares several qualities with Berkshire Hathaway (BRK.A 1.47%) (BRK.B 1.18%). They're both led by well-respected CEOs, Bruce Flatt at Brookfield and Warren Buffett at Berkshire, with strong track records of creating shareholder value and have business models anchored in insurance and operating businesses.
Both companies have also enriched their shareholders over the decades. However, Brookfield has delivered a superior performance, achieving an 18% annualized return over 30 years, which exceeds Berkshire's 13% and the S&P 500's 11%. Its strong performance reflects its exceptional investment and operational skills.
Three pillars of wealth creation
Brookfield is in a strong position to continue generating robust returns. It has built three leading wealth-creating businesses:
- Asset management: Through Brookfield Asset Management, the company is a leading alternative investment manager with over $1 trillion in assets under management (AUM).
- Wealth solutions: This segment offers retirement and wealth protection products, including annuities through Brookfield Wealth Solutions.
- Operating businesses: The company invests directly in real assets such as renewable power, through its investment in Brookfield Renewable; infrastructure, through Brookfield Infrastructure; business and industrial services, in Brookfield Business; and real estate, on its balance sheet.
The company built a leading alternative asset management platform from the ground up over the past 25 years. That business currently has over $1 trillion in AUM, which generates growing fee-based income and carried interest, which is its share of the excess profits produced by its investment funds. Brookfield expects this business to double its AUM over the next five years as more investors increase their allocation to alternatives.
Brookfield has also built a wealth solutions business from scratch. It now has over $110 billion in insurance assets, up from $2 billion four years ago, and projects reaching $300 billion in five years. This rapid growth should soon yield over $2 billion in annual profit. Like Berkshire, Brookfield invests capital from its insurance operations to further compound shareholder value.
Finally, Brookfield has been an owner-operator of real assets for more than 100 years. Its operating businesses generate cash flow for reinvestment, similar to Berkshire's strategy. However, Brookfield often channels excess cash into its own alternative investment funds while Berkshire typically buys shares of publicly traded companies.
High growth for a value price
Brookfield Corporation expects its three core businesses to grow its annual cash flow by more than 20% per share over the next five years. That puts it on track to generate a cumulative $47 billion in free cash flow, or $30 per share. That's a massive number considering its share price currently sits below $70, well under its current estimated value of $84 per share. Brookfield can allocate that cash toward growing shareholder value by paying a rising dividend, opportunistically repurchasing shares, and investing in expansion initiatives such as acquisitions and fund investments.
According to management, Brookfield's combined growth drivers -- such as doubling its AUM, expanding its insurance assets, and reinvesting its significant free cash flow -- and disciplined capital allocation could increase the company's per-share value to $176 by 2029. That would represent a gain of more than 150% from the current share price. And it aligns with the company's long-term target of delivering total annual returns of 15% or more.
Brookfield Corporation might be the only stock I need
I like holding lots of stocks. However, I have a higher allocation to Brookfield Corporation because it's such a fantastic company. The global investment manager has a terrific record of delivering above-average total returns, which should continue in the future. It also trades at a compelling price, especially given the growth it sees ahead. This combination of features is why I'd choose to buy and hold Brookfield Corporation if I could own just one stock.
