Two Canadian-based multinationals rated as ‘best buys’

Two Canadian companies with a global reach─one focused on tangible assets, the other on intangible assets─are rated ‘best buys’. These two Canadian multinationals are most suitable for new buying now.

When it comes to creating shareholder value, Brookfield Asset Management Inc. (TSX─BAM.A) — specifically its CEO Bruce Flatt — takes top honors. That’s the word from Barry Schwartz, chief investment officer for Toronto-based Baskin Wealth Management.

“A lot of people say Prem Watsa is Canada’s Warren Buffett,” says Mr. Schwartz of Mr. Watsa, CEO of Toronto-based Fairfax Financial Holdings Ltd. (TSX─FFH). “But I’d argue that Bruce Flatt is Canada’s Warren Buffett.  He and his team have been able to ignore the noise and focus on the long term.”

And focus they have, notching a compound annual return over the last two decades of 19 per cent.  Indeed, despite inflation, Mr. Flatt and his team have been able to raise revenue every year.

Because of this, institutional investors have chosen global alternative asset manager Brookfield to invest their money.  So, the company has been able make money by investing other people’s money, Mr. Schwartz says.

Assets built to last

Moreover, the assets Brookfield has bought are usually infrastructure plays, such as toll roads, power lines and real estate. So, they’re necessarily built to last.

Another Brookfield plus? The big ownership stakes that Brookfield’s senior execs have in the company itself.

“So, they feel your pain and share your gain,” says Mr. Schwartz of the managers. “They want the company to do well. They want the share price to go higher. They want the dividend to go higher because the bulk of their individual wealth is in Brookfield shares.”

 In the meantime, those shares will likely double in price over the next seven to ten years, Mr. Schwartz predicts, as the company grows its assets, as well as its fees for asset management.

For Mr. Schwartz, Brookfield Asset Management is a best buy.

Founded in 1899 as a provider of electric power and tram services in Brazil, Brookfield now boasts $181 billion in assets under management. With a payroll of 24,000, the company runs more than 100 offices in 20 countries.

For the three months ended Dec. 31, Brookfield’s net income jumped to US$1.7 billion, or C$1.59 a share, from US$850 million, or C$1.08 a share, for the similar period in 2013. But revenue was lower, skidding to US$4.7 billion from $5.5 billion.

For the 12 months ended Dec. 31, Brookfield’s net income climbed to US$5.2 billion, or C$4.67 a share, from US$3.8 billion, or C$3.21 a share, for the similar period in 2013.

Mr. Schwartz may have a soft spot for a company such as Brookfield whose stock in trade is tangible assets like infrastructure. But he also likes an outfit such as Power Corp. of Canada (TSX─POW) that deals in intangible assets, such as mutual funds, insurance policies and the like.

For one thing, he says, Power is a bargain, given that it now trades at a double-digit discount to its market value. Moreover, Power, like Brookfield, is good at creating shareholder value.

Then, too, in buying Power Corp., investors automatically get a stake in subsidiary Power Financial Corp. (TSX─PWF) and through it exposure to two of the latter’s strong financial services companies: Great-West Lifeco (TSX─GWO) and IGM Financial Inc. (TSX─IGM).

Company boasts new blood

In addition, because Power is now being run by the sons of founder Paul Desmarais, the company boasts new blood, says Mr. Schwartz. He admits that both brothers — Paul Desmarais Jr. and Andre Desmarais — are likely unhappy with Power’s bargain-basement valuation. But he thinks they’ll try to narrow the gap, either through share buybacks, dividend hikes, or even asset sales.

For Mr. Schwartz, Montreal-based Power Corp. is also a best buy.

In addition to stakes in both Great-West Lifeco and IGM Financial, Power Corp., through Power Financial, also controls London Life, Canada Life, Irish Life and Mackenzie Investments, a mutual fund manager.

For the three months ended Sept. 30, Power Corporation’s net earnings jumped to $350 million or $0.76 a share, from $206 million, or $0.51 a share, for the similar period in 2013.

For the nine months ended Sept. 30, the company also did well, jumping to net income of $906 million, or $1.97 a share, from $677 million, or $1.47 a share, for the similar period in 2013.

 

Investor’s Digest of Canada, MPL Communications Inc.
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