Beating the market can be difficult when picking stocks on your own. One common source of alpha can be focusing on small cap stocks, which tend to outperform its larger peers over time. Another source of alpha can be following the smart money, by mimicking the trades of professional investors. Our research has shown that, by combining these two approaches – buying the most popular small-cap stocks recently purchased by hedge funds – one can outperform the market on average.
Many hedge fund managers purchased shares of Macquarie Infrastructure Company LLC (NYSE:MIC) during the fourth quarter of 2013, including Richard McGuire of Marcato Capital Management (who is the largest shareholder among the funds we track), Eric Edidin and Josh Lobel of Archer Capital Management and Robert Boucai of Newbrook Capital Advisors. Other investors bullish on the stock include Doug Silverman and Alexander Klabin of Senator Investment Group, Jim Simons of Renaissance Technologies and Peter S. Park of Park West Asset Management.
Macquarie Infrastructure Company LLC (NYSE:MIC) is a $3.1 billion market cap company that owns, operates, and invests in infrastructure businesses primarily in the United States that provide a variety of services, such as bulk liquid storage and handling, natural gas / liquefied petroleum gas distribution, aircraft fueling and solar power generation. Due to sustained demand for their essential services, infrastructure businesses tend to generate steady cash flows throughout economic cycles that grow in-line with inflation.
Recent results of the company were at the lower end of management’s guidance, as higher expenses within its bulk liquids terminal business offset strength in the airport services business. Macquarie Infrastructure Company also issued 8.8 million additional shares in 2013, which were used to reduce its debt and fund acquisitions by its airport business. These investments, which are expected to close by the fourth quarter of 2014, should be accretive to free cash flow per share on an annualized basis. For 2014, management expects free cash flow per share of $4.35 – 4.50 versus $4.09 in 2013 and continued growth in its dividend, driven by the ongoing recovery in aviation flight activity as well as its proposed acquisitions (such as the recently announced purchases of several fixed base operations at airports in Florida) within its airport business, partly offset by more muted results from its bulk terminal and natural gas operations.
Macquarie Infrastructure Company LLC (NYSE:MIC) trades at a forward EV/EBITDA multiple of 17.2X, a premium to the 10.1X multiple for its peer group of transportation infrastructure companies. However, it is the only company in the industry that pays a meaningful dividend, which yields approximately 7%, and maintains an investment grade balance sheet, which is rated BBB- by Standard & Poor’s.
Macquarie Infrastructure Company LLC (NYSE:MIC) provides investors exposure to a defensive business model that generates a steady stream of cash flows with low volatility as well as future growth potential through bolt-on acquisitions. One major risk factor to consider is the possibility of higher tax payments in the future, as the company intends to fully utilize its Net Operating Loss (NOL) carryforwards by 2016. In addition, California and Illinois suspended the use of such NOL carryforwards, which, if followed by similar actions at other states, could hurt the shares. For those able to absorb such risks, however, the stock looks compelling.
This article was written by Jason Seo of Insider Monkey.