Duoyuan Global Water: 'Liquid,' With Good Potential

Jul.30.09 | About: Duoyuan Global (DGWIY)

By Timothy Lutts

My stock idea today takes its cue from water. Good old H2O. Water is a daily requirement of all living things, and the earth has a limited supply. So as the world’s population increases, proper management of water resources becomes increasingly critical. And where are both the population and the use of water increasing especially fast? China.

So my idea today is a very young stock, which came public on June 24 and just earned a spot in Cabot Top Ten Report. It’s Duoyuan Global Water (DGW), and here’s what editor Michael Cintolo wrote:

Duoyuan Water is a leading Chinese manufacturer of water treatment equipment and we feel very comfortable predicting that this company, if properly managed, will go far. And we think it will be properly managed, considering that the company has complied with the ISO9001 Quality Certification since 1996 and the ISO 14001 Environmental Certification since 1999 and also implemented Six Sigma methodologies.

The company’s products run the gamut from grit-removing sewage treatment systems to municipal drinking water systems to corrosion-inhibiting processors for industrial use to water purification systems for use by the medical and pharmaceutical industries. In addition, Duoyuan owns and operates a postdoctoral scientific research center, five professional research institutions and several comprehensive R&D laboratories. It’s the only company in the industry to own a thallophytic laboratory, which boasts the most advanced dynamic simulation laboratory equipment available.

Finally, Duoyuan owns dozens of patents with proprietary intellectual property rights in the fields of sludge concentration, sludge dewatering and sludge drying. The company’s revenues grew 55% in 2007 and 49% in 2008, and growth appears to be slowing this year as well, not surprising because of the global economy. But the future is bright, and as this one-month-old stock becomes better known we expect to see institutional sponsorship grow.

When that was written a week ago, the stock was trading at 27, and we gave the stock a recommended buy range of 25 to 27. It spent the next three days treading water at 27, and then burst out to new highs on Friday, topping 31 before pulling back a bit. So short-term, it’s a bit extended, but long-term it has a bright future. I suggest you watch it a while and try to buy after the next pause or pullback.