Are you looking for Canadian stocks that have the potential to crush the market?
If so, it helps to look into value stocks with strong competitive positions and high profit margins. A company with high profit margins is effective at generating profit, and a strong competitive position provides reason to think that the high margins will continue going forward. A cheap valuation, meanwhile, ensures that you don’t overpay.
In this article, I explore one TSX stock that crushed the market in the past, and continues to crush the market today.
Brookfield
Brookfield Corp (TSX:BN) is a Canadian financial services conglomerate active in many different financial sub-sectors. These include insurance, asset management and private equity/credit. The company is over 100 years old, having been founded as Brascan, a Canadian provider of utilities services in Brazil. Today, the company is highly diversified and involved in much more than utility services.
Brookfield’s main growth driver and historically its primary business activity is asset management. Through Brookfield Asset Management, the company runs funds and REITs for clients. Brookfield Asset Management has $115 billion in committed but uncalled (not invested) capital from its clients. Once invested, the capital will generate about $550 million per year in fee-related earnings.
Another interesting Brookfield subsidiary is Brookfield Renewable Partners (TSX:BEP.UN). Brookfield Renewable is a renewable energy company that supplies hydro, wind, and solar power. It serves clients across Canada and the US. It recently inked a deal to supply 10.5 gigawatts of clean power to Microsoft, a deal that has the potential to provide billions of dollars worth of new revenue. Overall, Brookfield Renewable Partners is one of Brookfield’s most exciting business units. It is publicly traded as a standalone company; BEP.UN shares boast a girthy 6.7% dividend yield.
Valuation
One of the things that attracted me to Brookfield Corp back when I first invested in it in 2023 was its valuation. At the time, it traded at $45, today it’s just a few cents off $80 – so the position has been a near-two-bagger for me. When Brookfield traded at $45, it was at a large discount to net asset value (NAV, which means market value of assets minus market value of debt). Today, it is still at a sizable discount to NAV (I’ve calculated that its NAV per share is $96.60), albeit a smaller one. So we’re at about a 17% discount to NAV here. If Brookfield’s assets and debt are valued accurately by the market, then Brookfield is undervalued.
Respectable growth
Another thing Brookfield has going for it is a respectable track record on growth. The company has compounded its EBITDA by 16% and its operating income by 15% per year over the last 10 years. Its revenue is down a little this year but that’s because of an asset divestiture that increased profitability. On the whole, Brookfield is a growing enterprise.
The bottom line
The bottom line on Brookfield is that it’s a profitable, growing, and by some measures cheap enterprise. The company has crushed the market over the last two decades, and will probably keep it up going forward.