Invest in 'Blue Gold' with Watts Water Technology

Families showering together may offend some sensibilities. However, the April, 2009 issue of National Geographic Magazine has a photo (legs only, sorry) of a family doing just that. Not only do they shower together, they do it standing in flat plastic containers to catch the soapy run off. The run off is then used to water the garden. This is one of many measures promoted by the state of South Australia to conserve water in the drought stricken area. Water is so precious every last drop is reused as often as possible.

Often called Blue Gold, water is the ultimate commodity. Why? Simple, without it, for ourselves and our crops, we die. Life cannot exist without water. Yet, we often take clean water for granted. We waste it and dump toxins in it. In an increasingly crowded world that has to change.

Watts Water (WTS), a $780 million cap company has been around since 1874 and supplies water control systems in North America, Europe and China. The company has been in China since 1994 but saw Chinese revenue decrease in 2008 due to currency, tax, wage and transportation issues.

The company website is www.wattswater.com. The site provides access to SEC filings, annual reports from 2001, dividend and stock data, press releases, webcasts and other company information.

WTS manufactures valves and related products which insure water quality, conservation and control. Recent focus has been on valves which prevent water back-flow. Back-flow controls prevent dirty water from contaminating clean supplies.

Smartmoney magazine discusses how Watts Water may benefit from the US $789 billion stimulus plan. See article here. Competitors include Flowserve Corp (FLS) and some private firms.

Watts had negative publicity last month as it cut jobs but increased executive compensation see article here. Also, there are some litigation issues which have dragged on for several years (see the 2008 annual report).

Watts has a PE of 13.7, price/sales ratio of .53 and a well covered 2.1% dividend. There have been 22 years of consecutive dividend payments. Recent market rallies show WTS participating strongly.

China is suffering major water quality problems while President Obama’s stimulus programs will benefit water infrastructure products in the US. In a world increasingly needing clean water WTS seems to have a solid future.

This seems to be a solid, long established company. Recent problems in China, litigation and perhaps ill timed layoffs and executive compensation issues may warrant caution, however.

Disclosure: Long WTS

Comments

[Mad Hedge F...:]

Here are some other names. Water may be the ultimate consumer staple, and investment in fresh water infrastructure is going to be a good long term investment theme. Although Earth is often referred to as the water planet, only 2.5% is fresh, and three quarters of that is locked up in ice at the North and South poles. Some 18% of the world population lacks access to potable water, and demand is expected to rise by 40% in the next 20 years. The UN says that $11 billion a year is needed for water infrastructure investment, and $15 billion of the US stimulus package will be similarly spent. An easy way to participate is to buy the Claymore S&P Global Water Index ETF (CGW), or buy the individual stocks Geberit AG (GEBN) and Veolia Environment (VIE).

Apr 24 10:10 AM

[khaz:]

To the author - Why is WTS better than FLS? Is it the oily parts of FLS? I considered both for new money in January and chose FLS because of the issues cited above.

To Mad Hedge Fund Trader - Why CGW over PHO? I was long PHO before CGW came on the scene. I continue to prefer PHO because of daily volume.

Regardless, long water

Apr 24 11:24 AM

[tc1:]

Murray Coleman of IndexUniverse.com on Oct 5, 2008 posted an article here at S.A. about some major water funds (FIW, PIO, PHO, CGW), nuancing it by discussing how each of these funds will vary its proportion of holdings across the 5 major sectors of water-related investments: utilities, wastewater treatment companies, resource managers, infrastructure, and foreign water-related holdings.

Some of these different water funds will do better or worse depending on how their largest sector-holdings are doing. CGW, for instance, is strongly weighted with foreign holdings. FIW (at least through last Fall-Winter) was strongly weighted on resource managers, and, since this sector outperformed the S&P500, FIW did better than its competitor funds.

May 01 07:16 PM

[khaz:]

FIW and PHO have been highly correlated over the past year, and both have performed better than PIO and CGW.

May 07 01:06 PM