February 2023 Brookfield Asset Management (BAM) and Old Tub Pairing

Feb 2023

Authors: Allan Maule, James Hatfield

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Website: bam.brookfield.com

Twitter: @brookfield

CEO: Bruce Flatt

Founders: William Mackenzie & Frederick Stark Pearson

Market Cap at Time of Article: $13.55B

Current Analyst Recommendations (16 analysts’ price targets median): $34.76, so at its current price of $32.65 this is a buy.

Revenue: $3.38 billion, down 12.80% (year over year)

Insider Ownership: 16.88%. This is strong compared to most larger companies, which means the people running the company have more incentive to perform.

What makes Brookfield (BAM) worth your hard-earned money for the next decade or more?

Brookfield Corporation (BN) split 25% of its interest in a 1 to 4 stock split resulting in Brookfield Asset Management (BAM). This was something that had been hoped for by investors and allows investment into the asset management portion of the business. Brookfield is a larger group of companies, and BAM is the part of the company that we are excited to own. This part of the company is 20 years old, although Brookfield was founded in 1899, so this is quite an old Canadian business. We love how long the company has survived; this part of the company is relatively young. BAM focuses on private equity, infrastructure, and real estate. This is one of the largest alternative asset managers in the world, and we think it has plenty of growth ahead. After the split, the stock dropped a bit, but overall held study as everyone started to digest the new company and await earnings. We are also excited about the high yield, high growth dividend (currently around 4% yield). We love growth companies and see double digital year-over-year growth ahead for BAM. With its long company history and the past 20 years of proven growth, we will hold onto BAM for a long time.

Why talk about Brookfield Asset Management to all your friends and family?

We think people love to talk about vacation rentals or secondary properties they own with their friends. Those additional properties can be a real headache to manage, so why not offload all that work and own real estate, infrastructure, and private equity without having to do all the work? We love the opportunity to put our hard-earned dollars to work but not have to worry or check on the investment every day. Those recurring asset management fees collected are reinvested to purchase more properties, and BAM expects to grow this 15% to 20% annually. We love this type of growth and focus; we think this is an excellent stock to talk about with friends and family because it’s one of those fast-growing companies that doesn’t have to have all the tech or disruptive business practices to continue to compound. If you want to own stocks and only follow a few companies, we suggest BAM be one of those companies.

How is this company disruptive?

Yes, BAM is not as disruptive as our typical companies, but it has a recipe for growth over the last 20 years that BAM can continue to reproduce. They have found a strategy of double-digit year-over-year growth that we can participate in for the future. We can reinvest the dividends into BAM to further grow our ownership in the company to enjoy even further compounding growth. The company has stated that shares will be worth $71 to $94 a share by 2027. With the current price around $35 and reinvesting dividends, we like the management team's story. Another cool part of this business that is disruptive is they don’t have to require much capital because they are an asset management company. Thus BAM can distribute the lion's share of earnings to investors (hence the 4% dividend yield).

Conclusion

Responsible growth, proven business, and adding asset management to our portfolio give us no hesitation to be excited to be part of this story. BAM will grow its recurring revenue for many years, which is already built into its fees. The current share price is appealing to get a position started, and although all stocks carry risk, we see the risk for this selection as far less than our typical high-growth companies.

Old Tub – Bourbon

Proof: 100  Price: $29

These days we’re all looking for ways to stretch our funds further. We shrink our takeout budgets, drive the car in econ mode, and ask ourselves if we really need that new pair of jeans when the old ones fit just right. Waste and excess are best left for low-interest rate environments, and even Brookfield Asset Management is leaning harder into renewable power and transition.

In the spirit of reuse and renewal, this month’s whiskey is Old Tub bourbon, a spirit devoted to seeing how far a distiller can stretch the sour mash of a whiskey. When distilling sour mash whiskey like this, some of the leftover fermented grains from previous runs get added into the next batch. This creates a lush environment where yeast can thrive, but harmful bacteria are less likely to spoil things. Hence the name “Old Tub”, since this whiskey is literally using the old tub of mash for the new mixture.

Sounds funky, but the taste at this price point can’t be denied.

Nose:

Oaky notes mix with lemon and honey. Subtle, but lovely.

Taste:

The citrus and spice hit your palate right away, fading into fresh peaches.

Finish:

This is another vanilla-forward bourbon, mixing in roast peanuts and the same spice as the taste.

Overall Rating: 3.5/5

A stronger-proof bourbon without the harshness, Old Tub is an easy recommendation at its modest price point. Here’s to stretching the good stuff farther!