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
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
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
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
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.
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