3 reasons to buy this ASX 200 share like there's no tomorrow

I think this stock can build investor wealth.

| More on:
Smiling young parents with their daughter dream of success.

Images source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 Index (ASX: XJO) share Brickworks Limited (ASX: BKW) has several appealing factors that make it a great investment opportunity right now.

The company is facing several headwinds at the moment, including high interest rates, inflation, and higher manufacturing costs.

But there are a number of reasons why I think Brickworks shares can deliver strong returns over the long term at the current price, particularly once interest rates start coming down.

Here's why I'm bullish about Brickworks shares and thinking about buying more for my portfolio.

Population growth

Brickworks' operating businesses produce building products in Australia and the United States. It's the biggest brickmaker in Australia and the northeastern US. In Australia, it also produces roofing, masonry, timber battens, cement, and specialised building systems.

The populations of both the US and Australia continue to climb, requiring more dwellings. And larger populations will no doubt add to the long-term demand for products from Brickworks' businesses.

Construction can be a cyclical industry, so I think now is a good time to consider the business while sentiment is weaker. If interest rates have materially reduced in a couple of years, conditions for the ASX 200 share could be much stronger then.

Ongoing underlying growth

Brickworks owns around a quarter of investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and half of an industrial property trust alongside Goodman Group (ASX: GMG).

Both of these assets are seeing longer-term growth in their operational profits, cash flows, and payments to Brickworks, which is driving up their value.

As the values of Soul Patts and the industrial property trust increase, Brickworks' underlying value lifts, too.

If Brickworks' balance sheet's value goes up over time, this can help increase how much the market is willing to pay for Brickworks shares.

Big asset discount

I love being able to buy businesses that are at a big discount to their underlying assets.

This ASX 200 share has significant asset backing across its building products manufacturing, the land it owns, the industrial and manufacturing property trusts, and the Soul Patts shares, though it also has a (relatively small) level of debt.

Created with Highcharts 11.4.3Brickworks PriceZoom1M3M6MYTD1Y5Y10YALL5 Jul 20235 Jul 2024Zoom ▾Sep '23Nov '23Jan '24Mar '24May '24Jul '24Oct '23Oct '23Jan '24Jan '24Apr '24Apr '24www.fool.com.au

Every six months, Brickworks tells the market its underlying (inferred) asset backing. At 31 January 2024, the business had $36.68 of inferred assets per share. The Brickworks share price is at a 27% discount to the January 2024 figure, though the Soul Patts share price regularly changes to alter this discount.

In my opinion, it's a very appealing valuation discount.

Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Goodman Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

Man ponders a receipt as he looks at his laptop.
Opinions

3 reasons why the Xero share price could be a strong buy

This stock has all the hallmarks of a long-term winner.

Read more »

Happy miner giving ok sign in front of a mine.
Opinions

Which ASX 200 stock offers 'material upside' amid continuing uncertainty over US tariffs?

Blackwattle Investment has identified one ASX 200 large-cap stock that is thriving on the uncertainty.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Financial Shares

2 rising ASX financial shares with 'meaningful upside' still left: fundie

Financials outperformed every other sector in FY25, but there are still buying opportunities left, say these experts.

Read more »

A businessman hugs his computer and smiles.
Opinions

If I could only own one ASX 200 share for the rest of my life, it'd be this one

This is one stock I expect to own forever.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

Person holding a blue chip.
Opinions

Buy alert! 2 ASX 200 blue-chip shares worth a look now: expert

Dylan Evans from Catapult Wealth has identified two blue-chip shares that he thinks are good buys today.

Read more »

Two happy woman on a couch looking at a tablet.
Opinions

Why I'm excited to see the results of these ASX 200 shares

These stocks could reveal very interesting insights.

Read more »

Young male investor smiling looking at laptop as the share price of ASX ETF CRYP goes higher today
Opinions

Why I just bought this 5.2%-yielding ASX dividend stock and plan to buy even more

This business is one of my favourites for dividends and total returns.

Read more »