The S&P 500 has rallied more than 20% off its bottom from last fall. That's one of the indicators that we could be preparing for a new bull market run.
We still have a ways to go until hitting a new all-time high (another key distinction of a bull market). However, optimism is gaining steam because we're nearing the end of the current interest-rate-hike cycle as inflation has started to cool off.
Despite that rally, many high-quality stocks are still cheap. Brookfield Infrastructure Partners (BIP -0.80%) and Williams (WMB -0.48%) stand out as bargains. Here's why value hunters may want to scoop up shares before a new bull market takes hold.
Rapid growth for a low price
Units of Brookfield Infrastructure Partners currently trade at about $36.50 apiece, which is roughly 15% below their 52-week high. That's a bargain price for a high-quality infrastructure operator.
The company currently expects to generate roughly $3 per unit of funds from operations (FFO) this year, more than 10% above last year's level (continuing its track record of delivering double-digit FFO per-share growth). That has it trading at about 12.2 times forward earnings.
That's a lot cheaper than the broader market. The S&P 500 currently trades at nearly 20x its forward P/E, while the Nasdaq Composite is even pricier at 28.7x.
Brookfield Infrastructure Partners is also cheaper than its corporate twin Brookfield Infrastructure Corporation (BIPC -1.04%). Despite being economically equivalent entries (i.e., they'll earn the same approximately $3 per share/unit of FFO this year and pay the same quarterly dividend rate of $0.3825 per share/unit), the corporation's stock price is roughly $10 higher, putting its valuation at 15.3 times FFO. Meanwhile, Brookfield Infrastructure Partners' lower valuation has it offering a higher dividend yield (4.2%, versus 3.3% for the corporate shares).
Brookfield Infrastructure recently took advantage of this disconnect to make a needle-moving acquisition. It will issue about $900 million of Brookfield Infrastructure Corporation shares to help fund its acquisition of Triton International. That's one of several deals the company has made this year to accelerate growth.
It already has strong organic growth prospects, thanks to inflation-driven rate increases, a growing economy, and expansion projects. These drivers position the company to continue delivering double-digit FFO growth while increasing its dividend by 5% to 9% per year.
A bottom-of-the-barrel valuation
Williams currently trades at around $32.50 a share, about 9% below its 52-week high. That's a bargain price for the natural gas pipeline giant.
The company expects to produce between $3.86 and $4.18 per share of adjusted FFO this year. That puts its valuation at around 8x earnings. The low valuation is a big reason why Williams offers a high dividend yield (currently 5.5%).
Williams trades as if it will never grow its cash flow again, and that's hardly the case. The company is investing $1.6 billion to $1.8 billion of its post-dividend free cash flow on expansion projects this year.
That's part of an extensive pipeline of projects that have the company on track to deliver a breakout year in 2025 when several projects will come online and start generating cash flow. Overall, the company expects to grow its earnings at a 5% to 7% annual rate over the long term, which should support continued dividend growth. (Williams boosted its payout by 5.3% earlier this year.)
Meanwhile, the company has a strong balance sheet, giving it additional financial flexibility to make acquisitions as opportunities arise. Williams has made several deals over the past year, including buying the Haynesville gathering and processing assets of Trace Midstream for $950 million, buying MountainWest Pipelines for $1.5 billion, and some natural gas pipeline and storage assets in the Dallas area for $423 million. These deals enhanced its operations and cash flow while providing additional growth opportunities.
Get paid well while awaiting the bull market
Because Brookfield Infrastructure Partners and Williams trade at such bargain valuations, they currently offer high dividend yields. That allows investors to earn attractive income streams while they await the next bull market. That combination of income and upside in a bull market could give these stocks the fuel to produce compelling total returns in the coming years.
