2020 Downturn playbook the motley fool ␲␰␲␰ downturn playbook 1 Welcome! financials, these are all companies that have strong First, thank you for sticking with us through the recurring, contracted, or inflation-protected cash past few weeks of market turmoil. We wouldn’t be flows. here without loyal members like you, and we never And, perhaps even more importantly, we also forget that. believe they have the visionary leadership to seize those opportunities. Second, we’re working hard to make sure you have all the tools you need to get through uncertain times Plus, several offer dividend yields that are multi- like these, and we’ll continue to do so. ples higher than the S&P 500 (currently 1.8%). Over time, dividend payments are more stable than stock To that end, we’re proud to present you with prices, making dividend stocks an important part of this members-only report, the 2020 Downturn any stock portfolio, particularly when markets get Playbook. volatile. We’ve collected 14 companies we believe have a And best of all, these investments are all selling strong foundation to win over the next three to five at very attractive prices! Remember, unlike the stock years and beyond. price, the value of a business rarely changes 20% That timeline is important here. or 30% in a week or a month. That means there are No company is downturn-proof. But the key opportunities in these beaten-down companies. opportunity, as we’ve shown time and again through- The stocks in this report aren’t meant replace the out past market turmoil, is to identify companies official Motley Fool picks you’re getting from your that can move decisively to position themselves for service advisors. Instead, we view these stocks as success when the disruptions end. a nice complement to help balance your portfolio These stocks have the means to take advantage of during these tough times, and beyond. broad setbacks. From big conglomerates to REITs to And with that, let’s get started! InsIde the 2020 downturn playbook Conglomerates Financials 2 Brookfield Asset Management 29 Charles Schwab 5 Berkshire Hathaway 32 Discover Financial Services 8 Fairfax Financial 35 MercadoLibre 11 Loews 38 Western Alliance Bancorporation 14 Markel Infrastructure Real Estate 41 Brookfield Infrastructure 17 Brookfield Property REIT 20 Howard Hughes 23 Redfin 26 Walker & Dunlop the motley fool ␲␰␲␰ downturn playbook 1 BROOKFIELD ASSET MANAGEMENT NYSE: BAM The Big-Picture cash-and-stock deal for a con- Why We Trust Leadership Opportunity trolling 61% stake in Oaktree Capital, another asset manager CEO Bruce Flatt has been with If your portfolio has been taking specializing in alternative assets — Brookfield for three decades. He a beating because of coronavirus only this time with a particularly served as the head of its real estate concerns — and surely you’re not strong history in the credit markets. and investment operations before alone — it’s probably because being promoted to CEO in 2002. you’re loaded up on stocks. You And he’s not the only highly experi- might also have some bonds and Why This Business Works enced member of the management mutual funds sprinkled in for good team. Many of the other execu- measure. There’s no denying the Brookfield Asset Management is tives at Brookfield started at the long-term appeal of high-octane good at what it does. Its heritage company before being promoted stocks and growth-oriented mutual dates back to 1902, and with the to managing partner or director. funds, but sometimes it pays to recent addition of Oaktree and its Promoting from within shows that check out asset classes that march $120 billion in assets under man- Brookfield knows how to groom to the beat of a different drummer. agement, it became an asset man- its future leaders, and it’s hard to Alternative assets include ager with more than $510 billion in knock that approach. precious metals, real estate, and total assets under its watch by the The boardroom takes a slightly commodities. Even your old base- end of last quarter. different approach, loaded with ball card collection would fall under A little more than half of its independent directors to provide this umbrella of nontraditional total assets under management — the company with a seasoned asset classes, and this is where $274 billion — is fee-bearing capital, outsider perspective. Its board Brookfield Asset Management as Brookfield carves out its modest members have hailed leadership [NYSE: BAM] steps up to the plate. toll for managing the alternative positions in companies as diverse The Toronto-based asset manager assets for clients. Brookfield also as General Electric [NYSE: GE], isn’t gobbling up Honus Wagner or has invested capital where it’s GM [NYSE: GM], Anthem [NYSE: rookie-season Mickey Mantle cards, entitled to a share of the profits ANTM], and Vale [NYSE: VALE]. but it does specialize in alternative (also known as carried interest). In assets that include real estate, other words, Brookfield could help renewable power, infrastructure, diversify your risk profile through and private equity investments. its distinctive business. Last year, it closed on a $4.8 billion 2 the motley fool ␲␰␲␰ downturn playbook the motley fool ␲␰␲␰ downturn playbook 3 5-Year Stock Chart: Brookfield Asset Management $75 $50 BAM $25 $0 2015 2016 2017 2018 2019 2020 Why We Think Brookfield investments in alternative energy. Brookfield’s mammoth size. It’s Asset Management Wins A big drop in crude oil prices is the not just passively investing in real likely culprit, as it weighs on the estate, wind farms, and businesses; in a Downturn attractiveness of other now-costlier Brookfield goes in with operational energy sources. improvements in mind to help turn We don’t want to underestimate Thankfully, Brookfield has more good investments into great ones. the risks of ownership. Brookfield’s than made up for the lull in its It’s not a perfect hedge against business model might be different upswings. The stock nearly doubled the stock market, but it’s a success- from that of most if not all of your the S&P 500’s heady returns last ful company with enlightened expo- current portfolio, but it doesn’t year, just as it trounced the market sure to alternative asset classes. always zig when the stock market in 2017. In one fell swoop, you can have zags. The asset manager’s stock a stake in one of the best in the shed more than half of its value business in snapping up real estate, in 2008 during that year’s global Why Brookfield Asset infrastructure, renewable energy, recession-triggering financial crisis. Management Is Worth an and private equity opportunities Most asset classes took a hit that without having to master the art of vicious year. Brookfield has also Investment Today those asset classes. Brookfield Asset proved vulnerable during the coro- Management is just the ticket in navirus downdraft of 2020, and this Height doesn’t always equal adding a new flavor profile to your time, the sell-off is likely tied to its might, but there are advantages to conventional investing strategy. the motley fool ␲␰␲␰ downturn playbook 3 Key Info: Brookfield Asset Management About the company Financials market Cap $55.8 billion net margIn 3.9欥 dIvIdend 1.3欥 3-year Compound annual growth seCtor Financials sales 40.7欥 Ipo August 1997 on TSX; earnIngs 19.4欥 December 2000 on NYSE headquarters Toronto, Canada Leadership tenure Bruce Flatt has been CEO since 2002. He joined Brookfield in 1990 and ran its real estate and investment operations. ownershIp Insiders own 10.3% of the shares outstanding, with Flatt the largest of those with nearly 4%. CompensatIon Performance is a major factor in compensation, as stock awards are much larger than annual salary. CEO Bruce Flatt approval 98% of employees approve of Flatt on Glassdoor. Culture & people satIsfaCtIon Employees give Brookfield Asset Management 3.9 stars out of 5 on Glassdoor. Board qualIty Brookfield has a diversified boardroom of independent directors that include former CEOs of GE Canada and health benefits specialist WellPoint before it became Anthem. 4 the motley fool ␲␰␲␰ downturn playbook the motley fool ␲␰␲␰ downturn playbook 5 BERKSHIRE HATHAWAY NYSE: brk-b The Big-Picture $20 billion that the company likes person of high integrity, which he Opportunity to keep in reserve, that leaves $100 has demonstrated on numerous billion in cash for CEO Warren occasions during the more than five With the coronavirus pandemic Buffett to deploy toward value- decades that he’s led Berkshire. His threatening to drive the U.S. econ- creating investments. Buffett is annual letters to shareholders, omy into a recession, you’d be wise a superb capital allocator, and he speeches, and interviews are to consider stocks that can perform does his best work during major treasure troves of investing insights well during difficult economic market declines, when panic is and wisdom for how to live a better times. Berkshire Hathaway rampant and prices are plunging. life. [NYSE: BRK-B] is one such business, as it’s built to not just survive but thrive during market downturns. Why We Trust Leadership Why We Think Berkshire Hathaway Buffett is one of the best investors Why This Business Works of all time, with a tremendous Wins in a Downturn record of value creation for Berkshire is a $440 billion mega- Berkshire and its shareholders. When fear returns to the markets, conglomerate with more than 60 From 1964 to 2019, Berkshire’s many investors panic. Not Buffett. operating subsidiaries spanning stock returned a staggering He’s renowned for keeping a industries as diverse as railroads, 2,744,062% to investors, compared level head during even the most utilities, and insurance.