Water Investing Long-Term Stock Picks (AWK, BMI, TTEK, WTS, VE, PHO, PIO, DGW, SBS, GE, MMM, ERII)

Badger Meter, Inc. (NYSE: BMI) makes and sells flow measurement and control products for water utilities, municipalities, and industrial customers worldwide to measure and control the flow of liquids in various applications.  In short, think of it the water accountant’s and transporter’s assistant.  With all the fears of wasting water and the need to account for water use and how it is distributed, Badger Meter’s future seems certain.  It is also small enough that an acquirer could always pay it a visit without ever having to bat an eye.

Shares peaked at over $50.00 in 2008 and it has been nothing but dead money for more than a year.  At $40.40, its 52-week trading range is $32.58 to $44.71 and analysts only have an average price target around $43.00.  The consideration here today is that Badger’s story is a matured company with over 100 years of operations.

Tetra Tech Inc. (NASDAQ: TTEK) is another diversified consulting and management company, but it has substantial operations in Water Resources, Groundwater Services, Watershed Management, Mining Services, Wetland Restoration, Remedial Planning and Environmental Management.  The company is involved in many large-scale projects that are tied to state and federal governments, and its shares are close enough to 52-week lows that there may be an adequate discounting of risk here when you consider that it has a history of good beats and bad misses on earnings reports and/or on guidance.  At $20.90, the 52-week trading range is $18.00 to $28.18 and the average analyst price target here is above $25.50.

The stock reflects the risk that local and national government business could be spotty.  If shares were up at 52-week highs and if the valuations were higher than 16-times forward earnings, that comfort in share price would not be the case.  The reliance upon government contracts would also be a concern if shares were higher.  With a $1.3 billion market cap this one does not have a dividend yet, so it may not be suited for many long-term investors who want a yield while they wait for the futurist trends of water investing to offer large rewards.

Watts Water Technologies,  Inc. (NYSE: WTS) has a diversified family products and companies around valves and other aspects of water conservation, safety, and control in commercial, residential, industrial and municipal applications with operations in North America, Europe, Asia and Africa.  There is a potential issue in its financial stance for some investors: it is not a cheap stock, has a low yield, and investors often have to be choosy about when they enter into the stock.

Watts has an implied dividend yield of only 1.3% and at $34.05 it has a 52-week range of $27.51 to $37.00.  It is also expected to remain short of its peak revenues from 2008 in both 2010 and 2011.  Still, its portfolio of water equipment assets is broad and it is one of the more respected names in the field.  Its stock has never really been one of those great rewards yet, and again investors generally need to be choosy here rather than just buying and hoping despite its having beat earnings expectations in each of its last four reports.  There is an old joke about Watts Water… “Watts Water?… the stuff you drink, silly”… but Watts Water is no joke.


Veolia Environnement S.A. (NYSE: VE) is thought of as one of the largest water plays out there.  Unfortunately, its water operations also are met with waste, energy, and transport units at Veolia.  It is our sole ADR among the picks, and it is based in France.  The water division has over 150 years of experience managing public water and wastewater services in public-private partnerships, making it a world leader in water treatment with over 12.5 billion Euros in revenues.  The unit claims some 95,000 workers in 66 countries and provides drinking water and wastewater services to about 163 million people.

With a high implied dividend yield (careful, it is annual dividend and the rate fluctuates with currency), there is room for income investors and value investors alike.  The $26-handle today is met by only two U.S. analyst price targets of almost $31 and $36 and the current bias from the field of analysts is a mixed or cautious one.  Shares were punished from April to July, and there is a fear that it does have risks tied to that pesky government risk issue that is plaguing the globe.  Shares peaked around $90 in the past, so the global slowdown has definitely worked against it and shares have just not really ever recovered.  Valuations are low enough here and the stock is far enough off highs that much of the items of concern may be adequately reflected in the share prices today.

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