We recently compiled a list of the 10 Best Defensive Stocks To Buy Now. In this article, we are going to take a look at where Brookfield Infrastructure Partners L.P. (NYSE:BIP) stands against the other defensive stocks.
Defensive stocks tend to remain stable and less affected by economic downturns. These companies operate in sectors that provide essential goods and services, which people need regardless of the economic climate. Defensive stocks mostly include stocks of companies among utilities, consumer staples, and healthcare sectors as they provide basic necessities of life. Companies in these sectors often show less volatility, and often provide steady dividends. They usually offer a safer investment choice during periods of market uncertainty.
US Stocks Surge But Experts Remain Cautious
U.S. stocks are having a great time, which is owed to strong economic data that has reassured investors. The S&P 500 and Nasdaq 100 have seen significant gains, as they are up 4.3% and over 6% over the last 5 days on August 15, respectively. The global markets have also recovered from recent losses, and the US broader market is back from the losses it faced in the first week of August. The investor sentiment remains strong and U.S. equities are seeing continuous inflows. Additionally, Fed officials are hinting at potential rate cuts which support optimism that the U.S. economy is on track for a soft landing.
However, some experts are still concerned about the future of the US economy and markets and hold a more conservative view. According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.
Leon Cooperman’s Perspective on the Current Conditions
On August 15, Omega Advisors chairman and CEO, Leon Cooperman shared his perspective on the current economic outlook with CNBC Money Movers. Cooperman expressed a cautious outlook on the economy, which is driven by two main factors. First, he is alarmed by the rapid increase in the U.S. national debt, which has doubled from about $17 trillion in 2017 to approximately $34-35 trillion today. He said that this level of debt growth, which outpaces economic growth, is unsustainable and could lead to a fiscal crisis. However, the exact timing of such a crisis is uncertain. He further added that neither political party is addressing this looming issue.
Secondly, Cooperman compared today’s market conditions to past periods of financial excess, such as the Nifty 50 era in the 1970s, when companies with extremely high valuations eventually went bankrupt. He noted that during those times, the 10-year bond yield was 6.5%, much higher than the current rate of around 3.9%. He believes that if the current bond rate is appropriate, market valuations aren’t too high. However, he suspects that interest rates are too low and anticipates a rise in long-term rates, particularly the 10-year Treasury yield.
While he expects the Federal Reserve to cut short-term rates, which could ease borrowing costs, he believes long-term rates will increase, leading to a decline in bond prices and potentially putting downward pressure on stock valuations. If long-term rates rise significantly, it could make the stock market less attractive and could possibly result in a market decline.
Even though the current year has shown healthy markets with a couple of corrections, Leon Cooperman’s expectations from the markets cannot be ignored. Cooperman has a track record of being one of the most successful investors of the past several decades. If they hold out to be true, investors might look toward more defensive sectors of the market.
Our Methodology
For this article, we used stock screeners to identify over 50 large to mega-cap stocks from defensive sectors such as consumer staples, utilities, and healthcare. We narrowed our list to 10 stocks with positive analyst sentiment and the highest average analyst price target upside as of August 16.
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Brookfield Infrastructure Partners L.P. (NYSE:BIP)
Stock Price as of August 16: $30.96
Average Analyst Price Target Upside as of August 16: 22.74%
Brookfield Infrastructure Partners L.P. (NYSE:BIP) is a real estate investment firm focused on managing investments in real estate and alternative assets, mainly focusing on energy and utilities. The company acquires and manages a diverse range of assets, including utilities, transportation, midstream energy, and data infrastructure. It is among our best defensive stocks to buy now.
Brookfield Infrastructure (NYSE:BIP) sells assets and reinvests the proceeds to improve investor returns. The firm also benefits from a strong deal flow, which facilitates both asset sales and acquisitions across various sectors. Recent transactions include acquiring Triton International, a leading global shipping company, as well as investing in data centers and a semiconductor manufacturing plant in collaboration with Intel Corporation (NASDAQ:INTC). These moves position the company to capitalize on the ongoing advancements in artificial intelligence.
Brookfield Infrastructure (NYSE:BIP) stands out as a possibly strong investment opportunity due to its consistent growth and dynamic investment approach. Over recent quarters, it has shown solid progress, with an 11% increase in funds from operations (FFO) in the first quarter and a 10% year-over-year rise for the second quarter. The acquisition of Triton International, the largest intermodal operator globally, carried out last year significantly supported this growth which has positively impacted their financial results.
The company’s ability to expand its backlog, which grew by 15% to $7.7 billion in Q2, reflects its active engagement in major projects. These projects, such as energy pipeline expansions and data center developments, are essential to sustaining long-term growth. The data infrastructure segment, although currently contributing only 10% to FFO, is expected to become a major growth driver. The company has been investing heavily in this sector and expects rapid expansion that will enhance its overall business performance.
Moreover, Brookfield Infrastructure (NYSE:BIP) plans to raise around $2.5 billion from upcoming asset sales. This capital will likely be reinvested into new opportunities, fueling further FFO and dividend growth. Its focus on both its stable existing sectors and promising new investments in data centers sets a solid foundation for continued success.
Brookfield Infrastructure (NYSE:BIP) has a Strong Buy rating as per the 10 analysts that have covered it. As of August 16, the average price target of $38 target implies an upside of 22.74% to the stock’s current price.
Overall BIP ranks 8th on our list of the best defensive stocks to buy. While we acknowledge the potential of BIP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BIP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
