Investing

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

TWO ALTERNATIVES VIA ETFs

Water has also had a lackluster performance with both the Palisades Water Index and the ISE Water Index not showing any significant upside to the broad market.  There are two alternatives for mutual fund or ETF investors to consider if you want to take out the guesswork.  There is a more domestic water ETF in the PowerShares Water Resources (NYSE: PHO) that trades at $16.60 and its trading range of the last year has been close to $14.50 to $18.50.  Then there is the less liquid and smaller international water ETF theme via the PowerShares Global Water (NYSE: PIO).  At $17.98, its 52-week range is $15.60 to $19.00.  Neither of these have recovered their former glory, and I think the holdings inside of each are often too diversified in other areas of operation not really tied to water.

EMERGING MARKET CONUNDRUM VIA THE BRICs

China and Brazil are two of the great growth where investors still flock to when they can.  When it comes to water investing for Americans, there are a couple of alternatives here.  And the caveat… enter at your own risk.

Duoyuan Global Water Inc. (NYSE: DGW) is supposed to be a water treatment equipment play for China.  Don’t get caught just hearing “China and water” in the stock.  The problem is that shares have fallen since the 2009 IPO from over $40 down to nearly $10 and shares got crushed in September while the broad market was strong.  The promise here has only been met so far with pain, and class action suits against the company.

Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE: SBS) is an interesting play for Brazil, and it is called “SABESP” locally.  The company provides basic and environmental sanitation services in the Greater Sao Paulo metropolitan area for water, sewage, and industrial wastewater systems.  It also wholesales water to six more municipalities, operates in 366 municipalities and serves more than 26 million people.  The stock trades at well under 10-times earnings but its dividends have been spotty and are not currently paid and the stock is at 52-week highs.  Again, enter at your own risk.

ELSEWHERE IN H2O

Again, water is a tricky investment class.  The fact that T. Boone Pickens has bought up water rights does not make the water stocks a safe asset class.  Many of our favorite names depend on valuations through time and greatly depend upon the timing because prices and valuations can get out of whack.  There are many much smaller names we have perused from time to time, but the promise often fails to live up to the hype.  Making pumps for desalination should be a win in theory, but Energy Recovery, Inc. (NASDAQ: ERII) has lost nearly 60% of its value since its 2008 IPO and its business has never really taken off in a major fashion.   SouthWest Water also went private in a private equity purchase this year in a 56% premium buyout by JPMorgan and Water Asset Management.

Miscellaneous news in the sector:

More than one-third of all counties in the continental-US face higher risks of water shortages by mid-century.

Back in 2008, The Futurist had a cover story called “Draining Our Future: The Growing Shortage of Freshwater.”

There really are traces of pharmaceutical compounds all throughout the water supplies of major cities.

JON C. OGG

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