IPO: Imitator's Public Offering

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Natural gas transporter Crosstex Energy Inc. (Nasdaq: XTXI) held its initial public offering on the Nasdaq on Tuesday, and IPO-starved investors went into a feeding frenzy. By the closing bell, the company's stock price had soared 30% from the $19.50 offering price to a $25.40 close -- on a down market day, no less.

But I honestly don't see what all the fuss is about. The company hardly seems unique. In fact, Crosstex Inc. and the limited partnership to which it plays general partner, Crosstex Energy LP (Nasdaq: XTEX) -- which itself IPO'd only a year ago -- resemble nothing so much as "Mini Me" versions of gas pipeline powerhouse Kinder Morgan, Inc. (NYSE: KMI)and its limited partnership, Kinder Morgan Energy Partners LP (NYSE: KMP). Both of these latter companies were highlighted for attentive Fools first by Whitney Tilson in 2002, then by Zeke Ashton in 2003.

In both families of companies, the "LP" does the work, while the "Inc." gets the money. Crosstex Energy LP owns and operates the Crosstex pipelines; Crosstex Energy Inc.'s role is essentially to collect cash "distributions" from Crosstex Energy LP. Similarly with the Kinder Morgan clan. There, Kinder Morgan Energy Partners LP owns the bulk of the assets and makes distributions to Kinder Morgan, Inc.

So much for the similarities. How the companies differ is at least as dramatic -- and more important for investors. Now, with both Crosstex Energy Inc. and Kinder Morgan, Inc. functioning more or less as receptacles for money generated by their respective LPs, the best way to learn about the general partners' business prospects is to examine the fundamentals of these LPs. Take a look at this comparison between Kinder Morgan Energy Partners LP's stats vs. those of Crosstex Energy LP:

      
        
          Kinder Morgan LP   Crosstex Energy LPMarket cap:   $8,750 million     $385 millionSales:        $6,330 million     $453 millionEarnings:     $674 million       $2 millionEPS:          $1.97              $0.04Net margin:    10.7%              0.4%ROE:           18.9%              1.3%
      
    

Numbers don't lie. Crosstex Energy LP has a lower price/sales ratio than does Kinder Morgan Energy Partners LP, but there is good reason for that: The latter is massively more profitable. Its net margin and return on investment both dwarf those of upstart Crosstex Energy LP.

As Warren Buffett famously said: "In the short term, the market is a popularity contest; in the long term, it is a weighing machine." Crosstex Energy Inc. may be the popular choice this week, but when investing for the future, I would place my bets on Kinder Morgan.

Rich Smith owns no shares of any company mentioned in this article, although he has owned Kinder Morgan, Inc. in the past. The Fool has a disclosure policy .