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Water Stocks

Written By Nick Hodge

Posted April 25, 2008

It takes 155 gallons of water to produce just one pound of barley.

One quarter-pound apple takes about 18 gallons. And every cup of coffee requires 36 more gallons than just the water in the mug.

But the most egregious use of water comes from the beef industry, which requires 1,783 gallons for every butchered pound.

You see, amid $3.50 gas and near-$120 oil, there is another vital liquid with it’s price on the rise.

Perhaps also lost amid global chatter about flaring food prices, water is increasingly being commoditized. And those who control it are seeing a constant appreciation of the value of their business.

But a detail that escapes many is that all three industries-ag, energy and water-are intrinsically connected.

It’s no surprise that many of the blue chip ag stocks have been on the rise, even in this time of economic hardship.

Deere & Co. (NYSE: DE), for example, is up 61% in the past year. Monsanto Co. (NYSE: MON) has done nearly twice as well, climbing 112% in the same time.

Of course, these success stories are well-known. But when it comes to water stocks, the following successful water sector investments have, in many cases, been overlooked.

Successful Water Stocks

In June of last year-in this very newsletter-I mentioned investing in water-related company Calgon Carbon Corp. (NYSE: CCC) when it was trading for $10.55. Today, it’s 42% higher and trading in the $15 range.

And just last month I told you about a company making crop irrigation equipment that saved both water and energy saying, "I believe it’s the new John Deere of the ag world." Lindsay Corporation (NYSE: LNN) was trading for $77.79 that day.

Today, it’s up to nearly $126 – a 62% bump in seven weeks.

Each of those water-related stocks have been in the Green Chip Water Index since early 2007, posting 145% and 289% gains, respectively.

Other big water movers include:

  • Layne Christensen (NASDAQ: LAYN), up 32% in five weeks

  • Badger Meter Inc. (AMEX: BMI), up 37% in six weeks

  • Pentair, Inc. (NYSE: PNR), 20% in six weeks

And there are stocks with recent success. But it’s still not too late to get in while the gettin’s good.

Not Too Late to Invest in Water Stocks

While I may have sounded less than excited about water ETFs in the past, they can provide industry exposure to investors that aren’t willing to take on the risk of individual companies.

Another benefit is that ETFs can smooth out bumps in the road, like missed earnings reports, that could severely affect just one company, for better or worse.

Most of the water ETFs took their lumps early in the year. But since mid to late January, all them have picked up the pace and are headed northward.

Here are the water ETFs that have caught my attention:

  • PowerShares Global Water (AMEX: PIO)

  • PowerShares Water Resources (AMEX: PHO)

  • First Trust ISE Water (NYSE: FIW)

You may also want to consider the Claymore S&P Global Water (AMEX: CGW), but I’d give the others the first look.

Each will give you exposure to water utilities, as well as to other manufacturers and heavy industry companies related to the sector.

Beyond ETFs, I remain bullish on a number of water company stocks and sub-sectors of the water industry.

One of those companies is Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE: SBS), which operates as the water sanitation company for the highly populated state of Sao Paulo, Brazil.

You can bet the current agriculture boom will make this stock respond positively. Currently, it’s only about $5 off its 52-week high.

And finally, there’s a new show coming to town in the water industry.

After postponing the American Water IPO last November, Germany’s second-largest utility, RWE (XETRA: RWE), announced this week they are offering 58 million shares priced at $21.50.

The company is now trading on the NYSE under the symbol "AWK."

Based in Vorhees, New Jersey, American Water is servies 15.6 million customers in 32 states and Canada. It is now the largest investor-owned water utility in the country by both operating revenue and population served.

It’s parent company, RWE, announced last week its intention to develop renewable energy projects with 50 local utilities. The company plans to triple its renewable energy capacity to nearly 4 gigawatts by 2012.

If you dabble in international investments, RWE is probably worth a look.

If it’s lucrative water (and alternative energy) profits you’re after, check out the Alternative Energy Speculator.

After recently recommending two solar stocks, I’ve got my eye on a few water plays that need unleashing. You don’t want to miss them.

Call it like you see it,

nick hodge