Investment Thesis for Brookfield Asset Management (BAM)

August 9, 2024

Profile:

Brookfield Asset Management Ltd. is primarily engaged in providing alternative asset management services. The Company provides its services through an ownership interest in an alternative asset management business, which is carried on by Brookfield Asset Management Inc. (Brookfield) and its subsidiaries. Its products have three categories, which include long-term private funds, perpetual strategies and liquid strategies. The Company's wholly owned subsidiaries include 2451634 Alberta Inc. and Brookfield UK Employee Co Limited. Brookfield is a global alternative asset manager with assets under management across real estate, infrastructure, renewable power and transition, private equity and credit. Brookfield offers a range of alternative investment products to investors around the world, including public and private pension plans, endowments and foundations, sovereign wealth funds, financial institutions, insurance companies and private wealth investors.

Executive Summary:

Brookfield Asset Management is positioned in sectors with strong secular growth drivers, including renewable energy and infrastructure. The company’s strong earnings growth and long-term self investments are great indictaors of continuted growth. BAM’s stock traded around $35.20, with a market capitalization of approximately $57 billion, reflecting a solid YTD performance of about 7.5%.

Market Overview:

BAM operates in the alternative asset management sector, competing with the likes of Blackstone (BX), KKR, and Carlyle Group (CG). The alternative asset management space has become more attractive to institutional and retail investors as traditional equities have been showing signs of more volatility this year. With the global push toward sustainability and infrastructure improvements, BAM is providing a significant competitive edge.

Comparatively, BAM’s P/E ratio of 16.5x shows the stock is trading cheaper than its peers such as Blackstone (P/E of 19.8x) and KKR (P/E of 18.1x). Given itsexposure to long-term secular trends, I believe that BAM is undervalued relative to its growth potential.

Growth Catalysts and Key Business Drivers:

  • Renewable Energy & Decarbonization: Brookfield is heavily invested in the renewable energy space, with over $100 billion in wind, solar, and hydroelectric assets globally. The company's focus on net-zero strategies aligns with global government initiatives to combat climate change, particularly in North America and Europe. The global renewable energy market is projected to grow at a CAGR of 8.4% through 2030, and BAM is poised to benefit from this growth.
  • In July 2024, BAM announced a partnership with major energy providers to expand its wind energy operations in South America, a region with untapped renewable resources. This move will not only increase its renewable energy output but also provide a steady stream of recurring revenue.
  • Infrastructure Boom: Brookfield has over $150 billion in infrastructure assets under management, which include toll roads, ports, and utility grids. As governments continue to invest in aging infrastructure, particularly in the U.S., I believe BAM’s infrastructure segment is going to see substantial capital inflows. In 2024, the U.S. Gov. committed an additional $1 trillion toward infrastructure improvements as part of the ongoing national infrastructure bill which will benefit the long-term growth opportunities for BAM, who is already heavily invested in critical infrastructure projects.
  • Private Equity and Opportunistic Investments: BAM’s private equity segment has grown rapidly, with $30 billion raised in 2024 alone for new investments. Brookfield’s expertise in identifying undervalued assets and transforming them into high-performing entities is consistently delivered above-average returns. Recent high-profile investments include acquisitions in data centers and logistics platforms, industries that are seeing exponential growth thanks to e-commerce and cloud computing.

Rationale and Justification:

Strong Financial Performance: In Q2 2024, Brookfield Asset Management reported fee-related earnings (FRE) of $740 million, an 18% increase compared to Q2 2023. The company's total distributable earnings reached $1.1 billion, which shows its ability to generate strong, recurring cash flow across its various asset classes.

Dividend and Shareholder Value: BAM also maintains a dividend yield of 3.3% which is extremely respectable and shows their commitment to shareholder value.

Investment Strategy:

My investment strategy for BAM focuses on capitalizing on medium-long term price appreciation.

  • Profit Objective: Target a moderately aggresive 25 - 35% price increase in the next 6 months.
  • Stop-Loss: Implement a risky stop-loss order at 11% because I fully believe any drop will be met with a bull rally.
  • Retest: Re-evaluate growth possibilities after the first target is met to identify further opportunities for appreciation.

Note: Retesting is done with all ASP Portfolio Stocks; updates can be found in the inbox on the sidebar.

Conclusion:

I fully believe that Brookfield Asset Management is going to see consistent steady growth for the next 4-6 months, considering ts strong exposure to renewable energy and infrastructure, two sectors also expected to experience long-term growth. The company's excellent financials, solid dividend yield, and valuation further strengthens my case. While they underperformed relative to the broader market in 2024, the long-term prospects for BAM are undeniable, driven by structural tailwinds in its core sectors. For long-term, risk-conscious investors, BAM is an excellent opportunity for growth.