Water Stocks

Written By Nick Hodge

Posted December 5, 2008

Each day news stories break that smart investors treat as a series of “dots.”

They absorb these dots, and connect them in such a way that trends emerge.

And if you’ve been paying attention, you’ll have recognized a serious trend emerging.

Here are a few of those big dots:

  • One-third of China’s Yellow River polluted

  • ADB approves $300 mln for water, sanitation in small cities of Sindh

  • ITT completes first Rural Drinking Water Safety Project in China

  • Water Filtration Plant Costs Skyrocket

  • S.Korea’s Doosan partners win $293 mln Saudi deal

Those are recent water headlines—from just the last three days—that I plucked from a series of news sites and industry newsletters.

As you can see, new deals in the water sector are rampant.

Increased demand, crumbling infrastructure, and now, the possibility of a second infrastructure-focused stimulus, have reignited interest in this sometimes seemingly cyclical sector.

Millions of dollars are changing hands everyday.

The headlines above discuss projects and deals worth well over $4 billion. That’s only five headlines from three days.

Fact is, water is here to stay as a long-term bull. And you’ll want to start thinking about staking an early claim in the profitable water stocks that will emerge.

Water Stocks

I’ve dissected and analyzed water stocks and related scenarios in these pages, and pages of our sister publications, many times.

The sector can be broken down into three basic vehicles for investment:

  1. Water utilities

  2. Water ETFs & funds

  3. Water infrastructure and related companies

Your investment goals should dictate which sector you go after.

Looking for slow, incremental growth and dividends? Check out water utilities.

After long-term value and steady growth? Try water ETFs and funds.

More often than not, I seek out the best water stocks with the highest growth scenarios, most advanced products and services, and the best chance to capitalize on niche solutions to big water problems.

Here are a few of the companies in that position right now, along with their specialty:

  • Layne Christensen (NASDAQ: LAYN), wastewater treatment, source identification, pipeline rehabilitation

  • Tetra Tech Inc. (NASDAQ: TTEK), water quality assessments, pollution remediation and control

  • Flowserve Corp. (NYSE: FLS), pumps, valves, seals, systems automation

  • Insituform Technologies (NASDAQ: INSU), in-ground pipe rehabilitation and replacement

Of course, there are many more currently attractive water stocks, but an endless list doesn’t really help your portfolio. What you need is a guide; a coach that presents water stocks with full research and precise buy-in and exit times.

Thousands of readers already enjoy that type of service by reading the Alternative Energy Speculator every week. You can be one of them.

But as I said, there is more than one way to skin this cat.

Water stocks are great for some investment objectives. For others, a managed fund or ETF is in order.

Let’s review some of those now.

Water ETFs

Here’s a list of the four main water exchange traded funds (ETFs) on the market:

  • PowerShares Water Resources (NYSE: PHO)

  • PowerShares Global Water (NYSE: PIO)

  • Claymore S&P Global Water (NYSE: CGW)

  • First Trust ISE Water (NYSE: FIW)

Here’s a chart of those four water ETFs over the past three months:

water etfs

As you can see, these ETFs have traded down with the broader market, even though some of the companies they hold have performed much better. Such is the drawback of an ETF.

But this group of funds does still hold promise, especially if you believe the market has found a bottom. From the looks of that chart, it looks like another downswing is in motion. I’d try to catch the bottom of this swing.

The last thing I want to address is the core group of stocks that call these ETFs home.  

I’ve exhaustively researched the top ten holdings of each of these water funds. And I found some interesting trends.

Most notably, I found the the same few stocks continually appear in the top ten holdings of each ETF, namely Tetra Tech (NASDAQ: TTEK), ITT Corp. (NYSE: ITT), Veolia Environment (NYSE: VE), and Nalco Holding (NYSE: NLC).

That research gave me a good idea of what the funds are including, so I can decide whether to recommend water stocks a la cart or funds to my readers.

It’s a nifty trick, and one I use often to find new water investments for my readers.

Call it like you see it,

nick hodge


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