Has Brookfield Infrastructure Partners Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Brookfield Infrastructure Partners (NYSE: BIP  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • 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 mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. 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 Infrastructure Partners.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 39.7% Pass
  1-Year Revenue Growth > 12% 158.0% Pass
Margins Gross Margin > 35% 45.0% Pass
  Net Margin > 15% 11.4% Fail
Balance Sheet Debt to Equity < 50% 82.7% Fail
  Current Ratio > 1.3 0.91 Fail
Opportunities Return on Equity > 15% 8.1% Fail
Valuation Normalized P/E < 20 35.58 Fail
Dividends Current Yield > 2% 5.0% Pass
  5-Year Dividend Growth > 10% 9.1%* Fail
       
  Total Score   4 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Brookfield Infrastructure Partners last year, the company has lost a couple points. A rising share price along with weaker net margins and returns on equity combined to raise Brookfield's valuation above where we like to see it.

Brookfield often gets labeled as an electric utility. That's been a good place to be lately, as giants Duke Energy (NYSE: DUK  ) and Southern (NYSE: SO  ) have benefited from low natural gas prices and huge investor interest in dividend-paying stocks. Consolidation in the industry has also attracted attention to the sector.

But even though Brookfield does have utility exposure, it encompasses so much more than most traditional straight utility stocks. The company has ownership interests in everything from power transmission and railroads to coal-shipping terminals, ports, and raw timberland.

Brookfield had an excellent year in 2011 as it continued to build out its global presence in a wide range of different sectors. For instance, it added interests in two toll roads in Chile, and it has traditionally jumped on undervalued assets wherever it can find them.

With Brookfield Asset Management (NYSE: BAM  ) having retained a 29% interest in the partnership, Brookfield Infrastructure isn't entirely independent. Moreover, owning it raises some tax issues. But as we saw with Kinder Morgan Energy Partners (NYSE: KMP  ) and the looming takeover of El Paso, high energy prices encourage more energy infrastructure investment. With a healthy and growing dividend, Brookfield could see a lot of future growth ahead of it.

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.

Brookfield Infrastructure Partners isn't perfect yet, but we've got some ideas you may like better. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

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. The Motley Fool owns shares of Brookfield Infrastructure Partners. Motley Fool newsletter services have recommended buying shares of Brookfield Asset Management, Southern, and 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.


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