Brookfield leads as RBC initiates bullish call on diversified financials

Investing.com -- RBC (TSX:RY) Capital Markets has initiated coverage on the North American diversified financials sector with a bullish stance on select names showing attractive value and structural growth dynamics. The coverage spans 10 companies, with Brookfield Corporation, Element Fleet Management, and Fairfax Financial identified as the top "diversi-finds" in the sector due to secular positioning, earnings momentum, and valuation opportunity.

Brookfield Corp (TSX:BN) is RBC’s top pick, rated Outperform, which reflects confidence in its business model and upside tied to a valuation disconnect. RBC analyst Bart Dziarski noted: “The current valuation disconnect is too extreme for what we view to be an industry-leading franchise in a sector benefiting from positive secular trends.”

RBC also sees material upside in Brookfield Asset Management (TSX:BAM) and Brookfield Business Partners LP (TSX:BBU_u), both rated Outperform. The former offers capital-light exposure to alternative asset management, while the latter is moving into a favorable monetization cycle, which could act as a near-term catalyst.

The firm is constructive on the P&C insurance space, citing its defensive profile and M&A optionality in a volatile macro environment. RBC is particularly optimistic about Definity Financial Corp (TSX:DFY) and Trisura Group Ltd (TSX:TSU), each rated Outperform, highlighting the former’s “transformational” Travelers (NYSE:TRV) acquisition and the latter’s rebound potential now that regulatory penalties have run their course.

Fairfax Financial Holdings Ltd (TSX:FFH) is another key Outperform-rated pick, where the market has yet to fully price in underlying franchise value. According to Dziarski, “Investors are still not recognizing solid franchise value,” signaling continued re-rating potential.

Among other diversified financials, RBC favors Element Fleet Management Corp (TSX:EFN) and Power Corporation Of Canada (TSX:POW), rating both Outperform on improving profitability and valuation upside. By contrast, the analyst initiated coverage on IGM Financial Inc . (TSX:IGM) with a Sector Perform due to concerns around the growth prospects for its core assets, IG Wealth Management and Mackenzie Investments.

Intact Financial Corporation (TSX:IFC) received a Sector Perform rating from RBC Capital Markets, reflecting a more measured view despite the firm’s strong franchise characteristics. While RBC acknowledges Intact’s solid positioning within the property and casualty insurance market, valuation concerns prevent a more bullish stance at current levels.

RBC applied a variety of valuation frameworks, including proprietary data analytics and return-based modeling, to challenge conventional consensus estimates. These findings support Street-high price targets for Brookfield Corporation, Element Fleet, and Fairfax Financial.

The broader thesis is built on differentiated research including deep dives into subsidiary holdings and M&A scenarios, with data science insights from RBC Elements enhancing the views. The bank concludes that a diversified approach across capital-light asset models, alternative managers, and insurance offers both resilience and growth in today’s market.

RBC Capital Markets’ initiation of coverage underscores a strategic preference for diversified financial firms that blend value, growth, and structural resilience. With high-conviction picks, the firm sees a compelling opportunity for investors to capitalize on dislocated valuations and favorable long-term trends.

This article first appeared in Investing.com