Is Brookfield Infrastructure Partners the Perfect Stock?

Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Brookfield Infrastructure Partners (NYSE: BIP  ) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Brookfield.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 43.9% Pass
  1-Year Revenue Growth > 12% 2148.2% Pass
Margins Gross Margin > 35% 34.9% Fail
  Net Margin > 15% 73.7% Pass
Balance Sheet Debt to Equity < 50% 92.5% Fail
  Current Ratio > 1.3 0.82 Fail
Opportunities Return on Equity > 15% 16.8% Pass
Valuation Normalized P/E < 20 8.21 Pass
Dividends Current Yield > 2% 5.3% Pass
  5-Year Dividend Growth > 10% 1.9%* Fail
       
  Total Score   6 out of 10

Source: Capital IQ, a division of Standard and Poor's. *Two-year growth rate. Total score = number of passes.

Brookfield Infrastructure Partners weighs in with a respectable score of six. Brookfield juggles a lot of different businesses under one entity, but in all of them, it tries to find undervalued assets and milk them for as much as it can.

Brookfield has an amazing breadth of geographical and sector coverage. It owns regulated utilities, natural gas pipelines, and transmission lines in Chile and Canada. Within its transportation segment, it owns ports, rail lines, and even part of a coal terminal in Australia. It also holds timberland in the U.S. and Canada as well as other raw land assets. With Brookfield Asset Management (NYSE: BAM  ) as its general partner, the company is also targeting Brazil for substantial investment.

Because of that breadth, it's difficult to compare Brookfield to any one competitor. Its yield and debt levels are close to those of utility Southern Co. (NYSE: SO  ) or pipeline company Enterprise Products Partners (NYSE: EPD  ) . Among timber companies, Brookfield carries a better dividend yield at a cheaper valuation than timberland REITs Weyerhaeuser (NYSE: WY  ) and Plum Creek Timber (NYSE: PCL  ) .

With a focus on infrastructure of all kinds, Brookfield is in a promising area at an opportune time. As long as global growth continues, Brookfield should be able to find profitable projects that will fall through to the share price.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Click here to add Brookfield Infrastructure Partners to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Brookfield Infrastructure Partners is a Motley Fool Inside Value recommendation. Brookfield Asset Management and Brookfield Infrastructure Partners are Motley Fool Global Gains selections. Brookfield Infrastructure Partners is a Motley Fool Hidden Gems recommendation. Enterprise Products Partners and Southern Company are Motley Fool Income Investor selections. The Fool has created a covered strangle position on Plum Creek Timber and owns shares of Brookfield Infrastructure Partners . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (14)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 23, 2011, at 1:19 PM, Stocklovr wrote:

    Gross margins of 34.9% = FAIL? You've got to be kidding!

    5-Year Dividend Growth > 10% = FAIL? Pretty tough to have a 5-yr div growth when the stock was spit off from BAM in 2008. They haven't even existed for 5 years!

    I'd say that you should have 8 out of 9 but I'm not real sure of the value of these kinds of articles are anyway (as evidenced by the lack of responses that they generally generate).

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