Being Resourceful in Water Works

 | May 29, 2013 | 9:00 AM EDT
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My regular readers know that a favorite source of ideas is attending boutique investment conferences. While the "big guys" mostly do top-notch research of course, I find that the smaller boutiques that specialize in specific industries or market cap sizes can add real research value.

In this vein, last week I attended the Brean Capital Global Resources & Infrastructure Conference in New York. Brean does a fantastic job uncovering the best emerging names in the energy, water and mining industries, and a day with their best ideas proved insightful.

Here are some of the water ideas that tickled my fancy from the conference. I highly recommend our institutional readers take a look at Brean's research offering, especially Michael Gaugler's efforts in the water industry.

American Water Works (AWK) – American Water has been a favorite "growth yielder" for me recently, with the company posting both solid upside to EPS estimates and a reasonably interesting yield. American Water has both regulated and market-based water and waste water treatment systems in 30 states and two Canadian provinces. The regulated water business provides a steady cash stream to fund the 2.7% yield. The market-based segment focuses on design/build/operate facilities for the military, municipalities and factories. The stock is neither cheap nor overly expensive at 19 times 2013 estimates.

Aqua America (WTR) – Aqua America is a regulated water/waste water utility operating mostly in the eastern US, with some non-regulated waste services such as septage and sludge hauling, etc. Revenue growth in the most recent quarter was 10%, due to acquisitions in Ohio as well as four smaller "tuck-ins." The stock is a bit pricey at 22 times 2013 EPS, but the 2.4% yield is satisfactory and additional acquisitions can drive additional stable growth in the quarters ahead.

Consolidated Water (CWCO) – Consolidated operates desalination plants in the Caribbean. The revenue stream consists of water sales to retail and in bulk to utilities. The company also builds and sells desalination plants. As desalination technology progresses and target geographies develop economically, Consolidated sees the opportunity to sustain its growth while also maintaining the 2.8% dividend. At 18 times 2013 EPS and 14 times 2014, the stock looks reasonable given the visible pipeline of new projects in the works.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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