According to him, Bill Ackman is a billionaire nine times over Forbes. He made his enormous wealth 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 on bond insurer MBIA and rescuing shopping center operator General Growth Properties.
Ackman has a concentrated investment style. His fund usually has ten investments or less, and when he finds something he likes, he bets big on it. A stocks he recently loaded up on is Brookfield (NYSE:BN) — which also happens to be one of my favorite stocks and top holdings. This is why I think buying Brookfield was a wise move that will likely make Ackman even more money.
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Ackman bought shares of Brookfield outright. His stake in it has increased fivefold since June to 22 million shares. That position is currently worth more than $1.7 billion, that is about 13% of his hedge fund’s assets, making it the top position.
Brookfield is not a household name among most investors, and the Canadian asset manager’s working methods may seem a bit complicated at first glance. It has three core activities:
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Asset management: The company owns a 73% stake in a leading company alternative investment administrator, and are Brookfield Asset Management The business community has more than $1 trillion in cash assets under management.
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Wealth solutions: The company offers a variety of insurance products and services, including annuities, personal and commercial property and casualty insurance, and life insurance.
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Operating companies: Brookfield has companies active in renewable energy (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, has insurance operations and invests capital in operating companies (and its funds) on behalf of investors. Meanwhile, it also owns one big interest in a leading alternative asset manager that can rival Blackstone in terms of size and expertise.
Brookfield has that too a strong one leader, CEO Bruce Flatt, who many call 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 has been with the company since 1990 and has been CEO since 2002. Over the past twenty years, Brookfield has achieved an annualized total return of 16%. That handily beat the S&P500 and Berkshire Hathaway, both of which delivered annualized returns of about 11% during that period.
Flatt believes Brookfield’s best days are still ahead. The long-term goal is to achieve an annualized return of 15% or more over the long term. The company is in a better position than ever to achieve that.
A number of factors support this view. First, Brookfield believes the market is currently undervaluing the company. Management estimates that the stock should trade at around $84 per share, based on the earnings power of the core franchises. That’s significantly above the current price of less than $60 per share.
In addition, Brookfield has significant embedded growth. The company expects to grow earnings per share by more than 20% per year over the next five years. That forecast is based on the expected continued expansion of its asset management and wealth solutions activities, the carried interest in its investment funds (its share of profits) and its ability to skillfully allocate the excess capital generated by its activities . Brookfield expects to generate cumulative free cash flow of $47 billion, or $30 per share, over the next five years, leaving plenty of cash available to spend on growing shareholder value.
The growth drives the company’s belief that this will happen increase the underlying value to $176 per share in 2029. That would equate to an annualized growth rate of 16% over the current estimated value and over 25% over the actual share price.
Brookfield and its subsidiaries are among my top interests. I have held shares more than a decade and routinely increase my position because Flatt is such a fantastic wealth creator. Like him, I believe Brookfield’s best days are still ahead of us. that’s why I think Ackman’s decision to buy shares is a brilliant move. I expect this 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 holds 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. This is why I think it was a brilliant move. was originally published by The Motley Fool
