“I have been meaning to ask you both your thoughts on the investment merits of water. Recent viewings of the performance filter make it very clear that there is commonality across geographic lines of water and water management themed companies setting new all-time highs. Your thoughts on the theme, and if you like what are the best global companies we can buy here in the U.S.? Thanks in advance”
Eoin Treacy's view Thank you for this question which I'm
sure will be of interest to other subscribers. Water is a supply inelasticity
meets rising demand theme but the investment proposition is complicated by the
fact that water is not a tradable commodity and the global water utilities sector
is dominated by state run interests. Therefore the most accessible route to
investing in this theme has been through companies that manufacture filters,
meters, pipes, irrigation equipment etc.
The Powershares Water Resources ETF has held a progression of higher reaction lows since late 2011 and broke successfully above $20 late last year. It posted new closing highs last week and while somewhat overextended relative to the 200-day MA, a sustained move below $22 would be required to question medium-term upside potential.
Pentair (1.72%) was added to the list of S&P500 dividend aristocrats last year, is in the flow control management sector and derives approximately 40% of its revenue from outside the USA. The share broke out to new all time highs in January and has spent much of the last two months consolidating mostly above $50. A sustained move below the 200-day MA, currently near $47, would be required to begin to question medium-term upside potential. (Also see Comment of the Day on March 7th).
Flowserve also manufactures flow control equipment which is utilised by the petrochemical, pipelines and water sectors. It generates almost 66% of revenue from outside the USA. The share broke successfully above $140 in November and a sustained move below that area would be required to question medium-term scope for additional upside. (Also see Comment of the Day on January 24th).
Pall Corp produces filtration and purification equipment, is globally diversified and the share first hit new all-time highs in December 2010. Reactions within the medium-term uptrend have become progressively smaller over the last three years as the trend has become more consistent. It has been consolidating below $70 since January and a sustained move below the 200-day MA, currently near $63, would be required to question medium-term upside potential. (Also see Comment of the Day on October 27th 2010).
Among utilities US listed American Water Works (2.46%) remains in a consistent medium-term uptrend. Alliant Energy is an integrated utility with water interests and yields 3.55%. The share has rallied impressively over the last few months and while overextended relative to the 200-day MA a sustained move below $45 would be required to question medium-term upside potential.
UK listed United Utilities (5.16%) has found support in the region of the 200-day MA on pullbacks since 2009 and is currently rallying from the most recent retest. Severn Trent (4.82%) found support in the region of 1500p in November and has held a progression of higher reaction lows since. (Also see Comment of the Day on October 25th).
Hong Kong listed China Everbright International is the country's leading environmental play. The share completed a decade long range last month and continues to extend the breakout. (Also see Comment of the Day on November 15th 2010).
Water accounts for 63% of Guangdong Investment's revenue and the share remains in a consistent medium-term uptrend with a succession of ranges one above another. The share found support near HK$6.50 this week and a sustained move below $6 would be required to question medium-term upside potential. An additional consideration is that the Guangdong government holds 66% of the company. This might be viewed as a tailwind for the company's prospects within China. (Also see Comment of the Day on November 9th 2012).