The trends are scary for the stuff we are running out of. Fresh water is on
that list. It’s what has sparked ETFs like PHO. I’m too active of an investor to
use ETFs (unless they offer an edge that I can’t provide myself, like a double
long/short component). PHO is simply long, I think every stock that has anything
remotely close to ‘Water’ in the company description. I wanted to dive in,
learn about the space, and cherry pick some investments. To get a feel for the
companies, I went in, read summaries and breezed annual reports making special
notes about segment information where applicable. I want to find stocks that
will benefit over the next 50 years as we run out of fresh water, so while I’m
sure there are great stocks in this ETF, I’m looking for specific exposure to
the trend.
I pulled up the list of the heaviest components of PHO, these are them:
ACM, VMI, TTEK, LNN, URS, VE, ACM, DHR, ITRI, AMN, SI, EMR, GE, IEX, PNR,
MIL, ROP, ITT, BMI, LAYN, NLC, WTS, CCC, FELE, PLL, MWA, GRC, INSU, SWWC,
WTR.
Then, I used morningstar’s compare wizard to help me sort the list. I sorted
the list by profitability, and PEG, and a few other criteria. I then just
started reading up on the companies at the top of the list. In that order, here
are my findings, notes, observations and commentary:
Roper Industries (ROP) - I’ll pass on it
$5.24B company
Q1
2008 Presentation
This company is by no means a pure ‘Water’ play. They are highly diversified
across major industries, almost like they are wandering without any direction or
specialization. It’s likely a really well run company, because they are exposed
to several micro-trends and it ranked highest on morningstar’s compare. One of
the businesses they are in is “Water metering & Usage information”.
Danaher Corp. (DHR) - I’ll pass, for this idea, but was impressed, will
revisit
$25.5B company
Q4 2007 Segment
Data
Q1 2008
Presentation
http://www.danaher.com/investors/
The word ‘water’ doesn’t even appear in the the company’s description on
google, but from the company’s web site:
“International concern over environmental quality is creating growth
opportunities for Danaher. The group is a global leader in water quality
analysis and treatment, providing instrumentation and disinfection systems to
help countries and municipalities increase the supply of clean water while
managing residential, commercial and industrial waste-water. Our ultraviolet
treatment systems disinfect billions of gallons of water every day in more than
35 countries and we provide a broad array of environmental solutions, including
underground tank monitoring and advanced vapor recovery, that are helping to
protect the water supply and improve air quality.”
From the Q1 ‘08 presentation, the “environmental” segment showed 25%
growth.
It’s another extremely diversified company, likely well run since it came in
#2 in the morningstar compare. The stock goes from north by northeast for the
last 20 years, it looks easy to own.
Ameron International (AMN) - I like it, but not sure yet
$1B Company
2007
Annual Report
http://www.ameron.com/
They say the best stocks to own, are the ones you don’t look for. Not sure if
this counts, I was looking for Water and found Wind. AMN, is apparently just
entering the wind market. They just
sold their first 25 2 MW Wind Turbines. I’ve been looking to add exposure to
the wind energy trend, I’ll make that another post. Back to the thesis at hand,
the exposure here is their “Water Transmission Group”. Looks like a major
infrastructure play, but none the less, sort of applicable. On page 68 of the 2007 annual
report, you’ll find the segment income is currently split almost evenly into
thirds between: “Fiberglass composite pipe, Water Transmission, and
Infrastructure products”. 3 years of History suggests that the fiberglass
composite pipe is the segment growing the fastest. The Asian operations
represented 1/6th of sales in 2007. They lump the Wind Sales into the “Water
Transmission” category, as sales in the category were flat For the Q1 2008
without counting the Wind sales. From the Q1 2008 Press Release:
“The water infrastructure market in the geographical areas served by the
Company continues to be soft. While market activity in Northern California has
improved, the bidding activity in Arizona, Nevada and Southern California
remains well below historical levels. We expect the water pipe market to begin
to recover late in 2008 and throughout 2009. Wind tower production increased
compared to the first quarter of 2007. The business continues on a learning
curve, but is rapidly achieving efficiencies. The outlook for the wind energy
market in the Western U.S. is for continued strong growth. Longer term demand
for the water pipe systems and wind energy in the Western region is expected to
be strong and the Company’s businesses are well positioned to capitalize on
these opportunities.”
Idex Corp. (IEX) - Pass
$3B Company
2007
Annual Report
Fluids Segments Product
Lines/Brands
The ‘Water’ segment here comes in the form of ‘Fluid & Metering
Technologies’. Among other things, the company is into ‘Health & Science
Technologies’, a segment they call ‘Dispensing’, and lastly ‘Fire Safety’. It
was an eye-opener to find out, on the second page of the 2007 report that only
3% of sales comes from “Water Treatment” and the rest of sales is in highly
diversified areas. After seeing that break-down, I chose to move on in my
search.
Valmont Industries (VMI) - Pass
$2.9B Company
2007
Annual Report
With a slogan like “Conserving Resources. Improving Life” I got excited. Wow,
that’s some deep branding. The company breaks down it’s highly diversified
segments into irrigation, coatings, engineered support structures, and utility
support structures. As expected, growth YoY was highest (24.3%) in irrigation
and it is their second largest segment which came in at $390M in sales. The
other three, were $110M, $580M, $330M respectively. While it’s not a pure play,
since the engineered support structures had the slowest growth, the irrigation
component is the growth driver here.
Franklin Electric Co. (FELE) - I like it, but I’m not sold yet
$900M Company
2007
Report
Upon reading the google summary, I became impressed by the company expanding
towards Canada, South Africa, and Brazil through acquisition. They currently
design, manufacture, and distribute ground water and fuel pumping systems in all
major countries. I like the spread they have through the supply chain, and the
fact that the management appears to ‘move’. Net Sales were pretty much flat YoY
for Water Systems, growth has been in the Fueling Systems space. Water Systems
accounted for $466.8M in Net Sales, while Fueling Systems accounted for $135.2M.
