If you have a fondness for Warren Buffett's Berkshire Hathaway, you'll likely be captivated by this stock that fosters wealth generation.
Warren Buffet is a top-notch investor, possessing an instinctive knack for channeling capital into investments that yield significant returns for his shareholders. Over the past 30 years, his company, Berkshire Hathaway (BRK.A -0.75%, BRK.B -0.76%), has presented an average annualized return of 13%, surpassing the 11% annualized average total return of the S&P 500.
Even though Buffet-led Berkshire Hathaway excels in boosting shareholder value, Brookfield Corporation (BN 0.44%) has managed to excel even more. Over the past three decades, this Canadian investment manager has delivered a stunning 18% annualized total return. Let's delve deeper into this wealth-creating company, which shares numerous characteristics with Buffet's Berkshire Hathaway.
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Berkshire Hathaway began as a textile manufacturing company, originating way back in 1839. Buffet took control of the company in 1965 and refashioned it into a multinational conglomerate holding company. Buffer used it as an investment tool to acquire other operational companies and to invest in publicly traded companies, transforming it into one of the world's most valuable companies.
Brookfield Corporation boasts a comparable, intriguing background. It traces its roots back to Brazil in 1899, to a company created for managing the construction of electricity and transportation infrastructure. Over the years, it evolved into Brookfield in 2005, with Bruce Flatt taking the helm as CEO a few years prior.
Now, Brookfield Corporation stands as a prominent global investment firm, boasting three primary business units:
- Alternative asset management: Through its subsidiary, Brookfield Asset Management, Brookfield is a leading alternative investment manager, managing over $1 trillion in assets under management (AUM). The company oversees private equity and credit funds that put capital to work for institutional investors, such as pension plans, endowments, foundations, sovereign wealth funds, and insurance companies.
- Wealth solutions: The company provides retirement services and wealth protection products (insurance) to clients.
- Operating Businesses: Brookfield controls operating businesses in the renewable power (Brookfield Renewable), infrastructure (Brookfield Infrastructure), business and industrial services (Brookfield Business), and real estate sectors.
In essence, Brookfield can be viewed as a mini-Berkshire Hathaway. Just like Berkshire, Brookfield owns operating businesses (e.g., Brookfield Infrastructure, Brookfield Renewable, and Brookfield Business) that generate earnings, which it then channels to invest in other operating companies and its investment portfolio (containing numerous renowned public companies such as Apple, Coca-Cola, and American Express).
Brookfield also has insurance operations (e.g., Sun Life Assurance Company of Canada). It employs the insurance float (i.e., insurance premiums set aside to cover future claims) to invest in additional operating companies and publicly traded stocks. Brookfield has adopted a similar approach by introducing its wealth solutions platform.
The momentum for wealth creation looks promising
Although Brookfield has been in existence in one form or another for over a century, its upcoming days seem brighter than ever. The company holds the conviction that it's in a better position than ever before to deliver annualized returns of 15% or more over the long term.
Several factors contribute to this assumption, including favorable tailwinds that are propping Brookfield up. It anticipates that reduced borrowing costs, lower capitalization rates, and increased transaction activity will boost its asset values, release more capital to its investors, and create carried interest (i.e., its share of the investment fund profits it manages). These factors, among others, inspire Brookfield's optimistic view that it will increase its cash flow per share by over 20% annually over the next five years.
This will provide it with a cumulative $47 billion (or $30 per share) to allocate toward investments in its funds, expanding its core operations, growing its operating businesses, and returning cash to its shareholders through dividends and share repurchases. This should enable the company to boost its underlying value by a 16% compound annual rate over the next five years.
Brookfield currently appraises the firm's intrinsic value to be around $84 per share (well above its recent share price in the mid-$50s). Its strategy values the firm at $176 per share by 2029. This represents a more than 25% compound annual return starting from today's share price.
A commendable Berkshire companion
Brookfield Corporation share many aspects in common with Berkshire Hathaway, including its ability to grow shareholder wealth at above-average rates. It believes it's in a stronger position than ever before to compound wealth for its investors over the next five years, thanks to the tailwinds that benefit the company. Due to this, it's an excellent long-term investment choice to complement your holdings in Berkshire Hathaway.
Despite Berkshire Hathaway's impressive performance, with an average annualized return of 13% over the past 30 years, Brookfield Corporation has outshone it with a staggering 18% annualized total return over the same period. Similarly to Berkshire Hathaway, Brookfield Corporation has a diverse investment portfolio, including holdings in renowned companies like Apple, Coca-Cola, and American Express.
Furthermore, like Warren Buffet's strategy for Berkshire Hathaway, Brookfield Corporation employs its insurance float to invest in additional operating companies and publicly traded stocks, thus enhancing its overall portfolio and shareholder value. The company's optimistic outlook, backed by reduced borrowing costs, lower capitalization rates, and increased transaction activity, makes it a promising long-term investment choice for complementing one's holdings in Berkshire Hathaway.
[Finance, money, investing, Berkshire Hathaway, Buffet, Brookfield Corporation, alternative asset management, assets under management (AUM), insurance float, shareholder value, tailwinds, above-average rates, long-term investment]
