Brookfield Renewable Tops the Split List

11/23/2020 5:00 am EST

Focus: STRATEGIES

Neil Macneale III

Editor, 2 for 1 Stock Split

Each month, Neil Macneale — editor of 2-for-1 — reviews stocks that have recently announced stock splits; he then selects one stock to be included in his proprietary 2-for-1 Index. Here's his assessment of the latest stock split candidates.

The election is over and the hope is that things in Washington will settle down and investors will regain some confidence the country and the markets will be getting back on a more predictable path.

This is the good news, but it is tempered by the nation-wide surge in Covid-19 cases and the stark realization that the pandemic turmoil is not over yet.

Historically, the 2 for 1 Index has ridden the roller-coaster of natural, political, and economic disasters, along with the markets, and come out ahead in the end. I'm assuming that's what will happen again this time.

For our latest analysis of recent splits, I combined several candidates from last month — McCormick & Co. (MKC), Rush Enterprises A (RUSHA), and Netease (NTES) — with three more recent split announcements; Rollins, Inc. (ROL), Brookfield Renewable Partners L.P. (BEP) and Tempur Sealy (TPX).

None of the six set my ratings algorithm on fire but RUSHA has improved somewhat since last month's analysis and RUSHA and BEP wound up tying for the top spot with respectable scores.

I had hopes for Tempur Sealy because of its 4 to 1 split ratio, but its lack of a dividend, its high price/book ratio, and its high beta dragged it down.

RUSHA and BEP came at their winning scores from different directions. RUSHA has relatively good valuation numbers and a strong balance sheet but the stock is fairly volatile and comes with a growth record and future prospects that, in my opinion, are not impressive.

Brookfield Renewable Partners, on the other hand, has modest to poor valuation numbers. In fact, is has no meaningful P/E because it currently has negative earnings.

I can't remember the last time I recommended a company that wasn't earning money, but there are other factors at play here. First and foremost, BEP operates as a pure-play renewable power platform at a time when the world is rapidly converting from fossil fuels to renewables.

Brookfield Renewable is highly diversified, owning a portfolio of renewable power generating facilities primarily in North America, Colombia, Brazil, Europe, India, and China.

The company generates electricity through hydroelectric, wind, solar, cogeneration, and biomass sources, with solar emerging as the real growth story because of the rapidly falling cost of solar panels.

The numbers are not all bad; we have a dividend close to 3%, relatively low volatility, and cash flow growing at around 6%/year.

BEP is more of a gamble than I'm used to but the renewable story is compelling. As a result, Brookfield Renewable Partners LP was added to the 2 for 1 Index as of the market close on 11/16.

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