The new index barometers will join the NASDAQ Water Index and the NASDAQ Water Total Return Index.  Whether this is green or sensible is up to you, but there is a fair question to ask here: How many water indexes are needed?  The new indexes are as follows:  OMX Global Water Index, NASDAQ OMX Global Water Total Return Index, NASDAQ OMX US Water Index, and the NASDAQ OMX US Water Total Return Index.

What is interesting about this and only highlights our key question even more is that NASDAQ is selecting the constituents from the same universe of stock picks as the first two water index readings.  The difference is in the component weightings. The total return indexes reinvest dividend payments and the price returns effectively discount the dividends.

Potable water and its future availability remain the key topics of why your investment portfolio should chase this sector.  Again, the trick is that it is not easy.  It turns out that many “water companies” turned out to be dependent upon the creation of new housing subdivisions over the last fifteen years or that they are tied heavily to government contracts.  General Electric Co. (NYSE: GE) and 3M Co. (NYSE: MMM) are two key holders of water investing, but these water operations are mixed with fluids in these conglomerates and investing in any conglomerate because of one aspect of their business just misses the point of investing.

Along with the theme of water investing for the long-term, we did create a list of Stocks to Own for the Next Decade and that included American Water Works Company, Inc. (NYSE: AWK).

What makes water difficult to invest in is that fluid and hydraulic outfits keep looking to consolidate via mergers and acquisitions.  This fresh Nalco Holding Company (NYSE: NLC) merger with Ecolab Inc. (NYSE: ECL) has the goal of adding $5.4 billion in a combination of cleaning, sanitizing and water management.

We now have ITT Corporation (NYSE: ITT) breaking itself up and one of the 3 surviving companies, its water company, will be called Xylem under the “XYL” ticker on the New York Exchange.

We recently featured some of our top water investments out to 2012 and beyond, including American Water Works Company, Inc. (NYSE: AWK), Insituform Technologies Inc. (NASDAQ: INSU), Tetra Tech Inc. (NASDAQ: TTEK), and others.  This was an expanded and updated module for our Top Water Pick for 2011.

What we do expect as one possible outcome from more index launches is the creation of more exchange-traded funds which track water investing.  There are already ETF products around the Palisades Water Index and Standard & Poor’s indexes.  ETFs do not currently track the NASDAQ indexes in water per our most recent screens.

PowerShares Water Resources Portfolio (NYSE: PHO) has more than five years of history and it has well almost $1.2 billion in assets inside the ETF.  Its international equivalent that includes the U.S. but is more globally focused is the PowerShares Global Water Portfolio (NYSE: PIO) but that one is only about one-third of the size in assets and only about one-fourth as liquid when measuring shares per day.

And then come the less liquid water ETFs, no pun intended… There is also the Guggenheim S&P Global Water Index (NYSE: CGW) ETF, which carries about $250 million in assets and trades about 50,000 shares a day.  The even smaller First Trust ISE Water Index Fund (NYSE: FIW) has about $69 million in assets but trades an average of under 20,000 shares per day.

There are many more ways to invest in water, but you have probably gathered that we maintain it is not an easy sector to invest in.  Many pure-play water companies trade at significant premiums to the broader market.  Even when you go through the individual stock holdings that these water ETFs hold, you will suddenly realize that the term “Water Investing” really translates to “companies which also have water operations.”

JON C. OGG

Water is a sector we consider as a “Must-Have” in most long-term investment portfolios.  We have even gone as far as saying that H2O is one of the key and critical investment sectors for futurists, who often look out a decade or more when evaluating trends.

Investing in water used to be much easier, but now companies like General Electric Co. (NYSE: GE) and 3M Co. (NYSE: MMM) have helped to consolidate the filtration segment of the water-trade.  Both of those are attractive investments from time to time, but both are far too broad to invest in just because they have water exposure that will drive growth in the future.  The top water stock for 2011 from 24/7 Wall St. was American Water Works Company, Inc. (NYSE: AWK) and that remains a favorite today.  Shares were trading around $25.30 when that award was issued versus about $29.00 now.  We continue to love this company and we admire its recent dividend hike.

Our goal is not just to update our own price target in American Water Works Company, Inc. (NYSE: AWK).  We believe that can continue on higher and we now think that $35.00 is feasible.  It just raised its dividend and we expect another dividend hike in a year and then again after that.  Still, the goal is to now identify those water investments which offer both growth and safety ahead as the stock market and economy are facing mixed outlooks.

Since we started covering the sector broadly, a lot has changed. Conversely, much remains the same as well and that is a good thing.  The 2012 election cycle is not far away, the economy is in a soft-patch, Greece is a real threat that could to topple Europe, Japan is trying to get out of the red in its GDP again, and both China and India are trying to slow their economies to fight inflation.  We want to review our “investable water universe” and single out some of our own single ‘best idea’ water investing strategies based on today’s valuations and trends of today that can have a significant upside ahead.

Some reports have been out about actual water scarcity here in America.  Securing potable water reserves in the future will be a challenge for many nations and this is where the term “The International Water Wars” comes from.  The water sector has given large rewards in some cases, and been very painful in other cases.

We are reviewing the following today: American Water Works Company, Inc. (NYSE: AWK); Watts Water Technologies, Inc. (NYSE: WTS); Instituform Technologies Inc.  (NYSE: INSU); Tetra Tech Inc. (NASDAQ: TTEK); and Calgon Carbon Corporation (NYSE: CCC).  On the international scene, there is Veolia Environmental S. A. (NYSE: VE) as well as Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE: SBS) as the international emerging wild cards.  To show just how risky this can be in foreign lands, there is Duoyuan Global Water Inc. (NYSE: DGW) that has been crushed with the batch of reverse-merger companies out of China and which has been halted for some time.  For more diversified picks via ETFs, there are also the PowerShares Water Resources (NYSE: PHO) and the PowerShares Global Water (NYSE: PIO) to consider.

• Celestica (NYSE: CLS) is trading up 13% at $4.15 on valuation after yesterday’s earnings. Its 52-week range is $3.60 to $9.86.
• Columbia Sportswear Company (NASDAQ: COLM) is up almost 6% at $32.65 after yesterday’s earnings,  52-week range is $29.02 to $52.99.
• Insituform Technologies Inc. (NASDAQ: INSU) is up 7% at $10.55 after earnings yesterday, but only 23,000 shares; prior 52-week range $9.26 to $19.15.
• IPC Holdings Ltd. (NASDAQ: IPCR) up 14% at $23.00 after earnings and note conversions yesterday.  52-week range $19.05 to $33.75.
• Western Digital Corp. (NYSE: WDC) is up almost 7% at $13.96 after yesterday’s earnings were better then rival Seagate; its 52-week range is $12.00 to $40.00.

Jon C. Ogg
October 24, 2008

The stocks and tickers discussed today were as follows:

• Aqua America (WTR)
• Insituform (INSU) 
• SAM Sustainable Water Fund (SMWIX)
• PowerShares Global Water (PIO)
• American Water Works… upcoming IPO
• Coca-Cola (KO)

If you are an investor that wants to invest in water or interested in learning about water investing you’ll want to listen to the report that lasts only about 9 minutes or so.  This is not covering only the bullish side and not meant as a tout for any single water stocks.

Jon C. Ogg
May 24, 2007