Stocks That Don’t Stink Right Now - Take a Sip

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November 21, 2008

Despite what it may feel like, not every single stock has been cut in half over the course of the last few months. Oh, the winners are few and far between to be sure, but there have been a couple of consistent hot spots since this summer. Specifically, water stocks – mostly utilities – have managed to make gains. Better still, the likes of Aqua America (WTR) and California Water (CWT) look like they could keep going for a while. Maybe even American Water Works (AWK) will finally wake up. However, it all starts with the chart of the Dow Jones Water Index.

Clearly these stocks had a rough time between August of last year and July of this year. However, after hitting a couple of painful lows on October, and one decisive one July, it’s been nothing but good for water utility names. In fact, the Dow Jones Water Index is only one of two industry indices with a positive gain over the last six months, up 14%. [Brewers were the other one with a 6% gain for the last six months, but that’s most attributable to Anheuser Busch (BUD).]

Dow Jones Water Index

Dow Jones Water Index

The key contributors to the gains above, as mentioned, were Aqua America (WTR) and California Water (CWT). Both are positioned to keep moving higher at their current pace. Artesian Resources (ARTNA) may also be looking to get in on the rally, though that’s the high-payoff/long-odds idea of the three in question.

Water Stocks

Water Stocks

Be aware that most of the fundamentals stink for this group. You’ll have to pay for quality, though when you do, you’re also paying for pretty wide margins. Aqua America, American States, SJW, and California Water are the most expensive, with P/Es (respectively) of 27.4, 22.4, 21.1, and 21.1. Net margins are above 10%, and some closer to 20%, in all cases. That’s much better than the overall market average, and a tad more reliable too.

What you’re sacrificing is growth – water is water, and it’s not like the demand or price changes much. In this iffy environment though, a non-cyclical commodity like water may make for a pretty decent investment.

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