Bill Ackman is a billionaire nine times over, according to Forbes. He made his vast wealth by running Pershing Square Capital, the hedge fund he founded 20 years ago. He increased his fame (and made a lot of money) during the financial crisis by betting against bond insurer MBIA and rescuing mall operator General Growth Properties.
Ackman has a concentrated investment style. His fund typically has 10 holdings or less, and when he finds something he likes, he bets big on it. One stock he recently loaded up on is Brookfield (NYSE: BN) — which also happens to be one of my favorite stocks and top holdings. Here’s why I think buying Brookfield was a wise move that will likely make Ackman even more money.
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Ackman has been buying shares of Brookfield hand over fist. His stake in it has multiplied five-fold since June to 22 million shares. That position is currently worth over $1.7 billion, which is about 13% of his hedge fund’s assets, making it the top holding.
Brookfield isn’t a household name among most investors, and the Canadian investment manager’s operation might seem a bit complex at first glance. It has three core businesses:
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Asset management: The company owns a 73% interest in a leading alternative investment manager, and its Brookfield Asset Management business has over $1 trillion in assets under management.
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Wealth solutions: The company provides a variety of insurance products and services, including annuities, personal and commercial property and casualty insurance, and life insurance.
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Operating businesses: Brookfield has operating businesses in renewable power (Brookfield Renewable), infrastructure (Brookfield Infrastructure), business and industrial services (Brookfield Business), and real estate.
In many ways, Brookfield is like a mix between Berkshire Hathaway and Blackstone. Similar to Berkshire, it has insurance operations and invests capital on behalf of investors into operating businesses (and its funds). Meanwhile, it also owns a large stake in a leading alternative asset manager that rivals Blackstone in size and expertise.
Brookfield also has a strong leader, CEO Bruce Flatt, whom many have called the Warren Buffett of Canada. Like Buffett, Flatt is a value investor with a phenomenal track record of allocating capital to grow shareholder value. He’s been with the company since 1990 and has been CEO since 2002. Over the last 20 years, Brookfield has delivered annualized total returns of 16%. That handily beat the S&P 500 and Berkshire Hathaway, both of which delivered annualized returns of about 11% during that period.
Flatt believes Brookfield’s best days lie ahead of it. Its long-term target is to deliver annualized returns of 15% or more over the long term. The company is in a better position than ever to achieve that.
A few factors support that view. First, Brookfield believes the market is undervaluing the company today. Management estimates that the stock should trade at around $84 per share based on the earnings capacity of its core franchises. That’s significantly above its current price of less than $60 per share.
On top of that, Brookfield has significant embedded growth. The company expects to grow its earnings per share by more than 20% annually over the next five years. That forecast is based on the expected continued expansion of its asset management and wealth solutions businesses, the carried interest in its investment funds (its share of the profits), and its ability to adeptly allocate the excess capital generated by its operations. Brookfield expects to produce a cumulative $47 billion, or $30 per share, of free cash flow over the next five years, giving it plenty of cash to allocate toward growing shareholder value.
The growth drives the company’s belief that it will increase its underlying value to $176 per share by 2029. That would amount to an annualized growth rate of 16% from its current estimated value and more than 25% from its actual share price.
Brookfield and its subsidiaries are among my top holdings. I’ve held shares for more than a decade and routinely add to my position because Flatt is such a fantastic wealth creator. Like him, I believe Brookfield’s best days are still ahead of it, which is why I think Ackman’s decision to load up on shares is a brilliant move. I expect that decision will make him and his investors a lot of money.
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Matt DiLallo has positions in Berkshire Hathaway, Blackstone, Brookfield Asset Management, Brookfield Corporation, Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Brookfield Renewable, and Brookfield Renewable Partners and has the following options: short January 2025 $60 calls on Brookfield Corporation. The Motley Fool has positions in and recommends Berkshire Hathaway, Blackstone, Brookfield, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool recommends Brookfield Infrastructure Partners, Brookfield Renewable, and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
Billionaire Bill Ackman Recently Bought One of My Favorite Stocks. Here’s Why I Think It Was a Brilliant Move. was originally published by The Motley Fool
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