Invest In 'Irreplaceable Assets' And Earn A 5% Yield With This Stock


Shutterstock photo

When it comes toinvesting , it's all about valuation and timing. If you can findundervalued assets at the right time, you can make an absolute fortune.

Some assets are priceless because they are not easily replaced andoffer few viable alternatives. Think about fine art, rare diamonds or vintage gold coins.

Now think about the irreplaceable roads, airports and railroads we use every day. How valuable are those assets?

One of the concerns the United States is currently facing is the growing need for improved infrastructure. It is a $2 trillion crisis no one is talking about. So when I think about long-terminvestments , infrastructure seems to be a safe bet.

Infrastructure businesses often generate consistent, growing long-termcash flows. This is because the demand for the everyday services they provide exists in virtually every economic cycle. Also, those companies are often in sectors where there are high barriers to entry. They often own high-value physical assets that are difficult to replicate.

I also appreciate the fact that these businesses createrevenues that are expected to keep pace withinflation . The price escalators built into agreements and the inflation and cost pass-through adjustments typically are a part of pricing terms that serve to insulate infrastructure businesses to a significant degree from inflation andcommodity price risk .

While searching for infrastructurestocks , I found a company that owns, operates and invests in a diverse group of these businesses in the United States. This company owns the largest network of fixed-base operations on leased land at airports across the U.S., as well as a 50% stake in International-Matex Tank Terminals, an industry leader in the handling and storage of bulkliquid products.

The company I am referring to is Macquarie Infrastructure Co. (NYSE:MIC ) .

The real value here is thestock 'sdividend yield of nearly 5%. Thisdividend 's growth potential is consistent with the fundamentals of each of Macquarie's businesses. The company'sboard of directors has indicated itwill authorize the payment of a substantial majority of the cash generated by its businesses and investments as a quarterly dividend.

Macquarie is up more than tenfold since 2009:

In February, the company reported its 2012 results, showing 9.3% growth in proportionately combinedfree cash flow of $3.45 per share in 2012, compared with $3.16 in 2011. Macquarie also forecasts 13% growth in proportionately combined free cash flow for 2013.

Macquarie reported consolidatedrevenue of $1.03 billion for 2012, up 4.6% from 2011. The revenue growth primarily reflects increasedsales volume and higher energy prices, such as for jet fuel and gas feedstock, which are typically passed on to customers.

One interesting recent development is Macquarie's $9.4 millioninvestment late lastyear in two solar power plants inpartnership with Chevron Energy Solutions. The Arizona- and Texas-based facilities are capable of producing enough clean electricity to power 6,200 homes. The energy being produced has been sold to regional utilities for 20- and 25-year power purchase agreements.

Risks to consider: The stock currently carries abeta of 2.5, meaning it is two and a half times more volatile than the overallmarket . Case in point: In 2008, Macquarieshares lost more than 85% of their value -- a loss that was followed by again of 225% in 2009. Additionally, infrastructure firms face significantpolitical risk in North America, potentially affecting investment decisions. Additionally, with a forwardprice-to-earnings ratio of 48.3 and a price/earnings-to-growth ratio of 18.3, the stock's valuation is unlikely to attract value investors.

Action to take --> Macquarie is a good buy up to $60 per share. With ayield close to 5%, this stock offers a great combination of growth andincome . This stock could hit $70 within the next 12 to 18 months.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.

This article appears in: Investing , Investing Ideas , Stocks

More from StreetAuthority




Investing Ideas
Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by