A Foundational Stock for the Future of Energy
Brookfield Renewable (BEP -1.09%) (BEPC -0.91%) has both strong management and capital discipline, making it a strong portfolio pick. In this clip from “The High Energy Show” on Motley Fool Live, recorded on May 31, Motley Fool contributors Jason Hall and Travis Hoium make the case for why Brookfield Renewable is a foundational stock in the future of energy.
Jason Hall: I’m going to go with Brookfield Renewable. Again, I think the idea here is, and Travis is probably mad because that’s what he wanted to add.
Travis Hoium: That was predictable. That’s what I would add.
Hall: Frankly, I think that should be like a foundational future of energy holding for this portfolio. What is Brookfield Renewable? I’ve talked about Brookfield asset management, the parent company, and like their legacy with Bruce Flatt of just incredible capital allocation. I want to say this, Friday, Jim Gillies was on daily download with us. He said that Bruce Flatt is the Warren Buffett of Canada. I think that says a tremendous amount about Bruce Flatt. Brookfield Renewable started off as hydroelectric. I think still maybe close to half of their cash flows come from hydroelectric dams. But going back to 2017/2018, somewhere around there, they made this pivot toward wind and solar, buying the assets, investing in the utility-scale projects because they realized that you can make money. You can make money. Then, there is this large tailwind of future capital growth that’s going into renewables. It’s the best eating in renewables because you get the long-term cash flows. If you’re well-capitalized, you can get good interest rates, and you can lock in and make a good spread between your cost of capital and the long-term cash flows that you generate. Then, recycle that capital when you see opportunities to sell at a premium and then take that money invested at a lower multiple in maybe something that just has better growth opportunities. This pivot toward wind and solar, I think, this focus, this capital discipline that they have, you have all of the tailwinds and you have a management team that knows how to invest well and own well and improve the assets well. It should be like a foundational stock in this portfolio.
Hoium: Yeah, I agree. This is a key piece of the energy transition, is the finance piece. They’re not making solar panels or wind turbines or transmission lines or anything like that, but they own those assets, and that’s really critical for all the companies that are upstream from them to have the financing to be able to stuff in the ground.
Hall: One thing too just real quick, a couple of years ago, they decided to get more into distributed solar and not just the utility-scale stuff. You think about the stuff that’s on top of a Walmart (WMT 0.56%) or a parking garage, that thing, that’s feeding into the grid, but it’s not part of utility. That business is growing at a much faster rate than they thought that it would and the economics are pretty good too. They’re really touching all of the areas of power generation in renewables and making good money from it.