Investor Insights:
- The beauty of momentum investing is that anyone can do it. And it works.
- Today, I want to tell you how I used momentum to find a great stock.
- It pays a solid yield of more than 4% while generating market-beating returns.
Have you ever heard the term “rubbernecking”?
H.L. Mencken said the word is “almost a complete treatise on American psychology.”
He meant many of us are followers.
I most often hear rubbernecking as a term that describes what drivers do when there’s a car accident.
For whatever reason, we can’t help but to look at an accident … and away from the road we’re driving on. That’s human momentum at work.
We do this in investing too.
“I wonder what stocks are moving higher today?” we think before we look at the market.
“Well, look at that. I had been thinking about buying shares of stock ABC. And now it’s in an uptrend.”
Luckily, in investing, rubbernecking can be lucrative.
Today, I want to tell you exactly how I used momentum to find a great buying opportunity.
Another Word for Momentum Investing
You may think the word rubbernecking is silly. I understand.
I wasn’t even sure how real it was until I drove in Orlando, Florida. Be careful if you ever have to do so.
But rubbernecking is also just another way to describe investing with momentum.
The beauty of momentum investing is that anyone can do it. And it works.
Here at Banyan Hill, we have lots of systems to help us assess and trade momentum.
I use these tools to validate my investing.
I try to confirm there’s something that underlies the uptrend I’m seeing in a stock chart.
Meaning if a stock is moving higher, I want to learn if there are fundamentals that support its uptrend.
I’d like to share an example of this with you today.
This name is in an uptrend. That’s where I start when I’m looking for positive momentum. But it has something else too…
An Asset-Based Powerhouse
The name is Brookfield Infrastructure Partners LP (NYSE: BIP).
It owns telecom towers in India, a rail line in the U.S. and a gas pipeline in Mexico … among other hard-to-replace assets.
Its cash flows are split almost evenly between North America, South America, Europe and Asia.
(Source: Brookfield)
Because of the recurring cash flows of these assets, Brookfield pays a solid yield of more than 4%. That’s more than 2.5 times the 10-year Treasury.
And the yield also attracts investments from risk-fleeing investors.
The cash flows and low interest rates have also helped Brookfield generate market-beating returns:
Brookfield Has Solid Momentum
Brookfield is in white, while the S&P 500 Index is in green.
You can see Brookfield has solid momentum. One of the reasons is its solid fundamentals (the “something” I mentioned above):
(Source: Bloomberg)
Year in, year out … Brookfield generates value.
Please note, this is sales and free cash flow (cash from operations minus capital expenditures) on a per-share basis.
If the company’s revenue increases but its share count grows even faster, Brookfield hasn’t created value for investors. We can measure this by looking at the data on a more granular basis.
Brookfield’s free cash flow numbers can be lumpy at times. This is because it’s often buying assets.
Those one-time capital outlays can reduce free cash flow. But management has acquired well over the years … paying sensible prices for high-return assets.
When your business is built on a strong fundamental base that you continue to grow, good things happen.
There’s another reason why I like Brookfield too.
It seeks to sell assets when it can get top dollar for them. It’s in the process of selling four mature assets at a profit.
That’s an option that gives us confidence as investors.
If times get tough, management can create value by selling the company’s assets.
Stay Strong
Even though the market has hiccupped lately, we still have options as investors.
Find stocks that are in an uptrend … with solid per-share fundamentals.
So, when the market looks like it’s getting a cold, don’t put your head in the sand. Names like Brookfield can persevere through tougher times (and will benefit from subsequent good news too).
During temporary market drops like this, many will seek to find a money market fund to park some cash in. I prefer to seek an investment that can appreciate … and pay me an even greater payout at the same time.
I encourage you to do the same. Brookfield is a solid place to start.
Good investing,
Brian Christopher
Editor, Profit Line
P.S. Please note, Brookfield is a limited partnership. These have some different tax attributes than a regular stock. If you aren’t familiar with limited partnerships, I encourage you to speak to a tax professional before jumping in.