Sunday, July 30, 2017

Brookfield Asset Management Update

Brookfield Asset Management (BAM) shares have been range bound between $30 and $40 over the last 2 years. This however masks the steady progress made by the company in growing value. The company now has AUM of $250B with $120B of fee paying AUM. The spin of of BBU which will unlock value through the growth in the Private Equity side of the business is a positive. The acquisition of Asciano, Brazilian Pipeline and Water Company, Colombian Hydro, Sun Edison assets, India Telecom Towers all are building the platform and growing the value. There has been good progress on the Manhattan West and Canary Wharf developments. Risks remain relating to Emerging Market currency trends and impact to GGP due to the Amazon disruption of retail and Brexit impact on UK currency and growth. If BAM can grow Fee Paying AUM to $200B over next 3-5 years and continue building its asset platform this cash generating business which will grow and prosper with the growth of the global economy and infrastructure should grow the value of BAM from $40B to $100B over the next 10 years.

Berkshire Hathaway Update

Berkshire Hathaway (BRK-B) is growing value slowly but steadily. Possible take over of Texas Utility Oncor is a positive but there is $100B of cash which needs to be deployed. This large cash position has been a drag on BRK-B cash earnings growth rate. The rail freight recovery and the manufacturing upswing in the US economy are a tailwind for earnings growth over the next 12 months. BRK-B is trading for $174 which is reasonable and target 2018 end fair value in excess of $200 is feasible.

Real Assets Stand Test of Time

The technology companies are changing the world. 20% plus topline growth is very impressive. But FAANG stocks have a lot of good things for the next decade already factored into the share prices. Many tech companies will be crossing the 1 Trillion Market Cap in next 2 years at this rate of valuation. Is this time really different or are we in another tech bubble, only time will tell.

Regardless of how the future unfolds real assets that produce cash and have barriers to entry will continue to retain value and grow value as real cash flows rise. Top picks include BRK-B, BAM (and child companies BPY, BIP, BEP, BBU).