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2 Stocks Benefiting From The Global Water And Energy Infrastructure Build-Out

Jan 9 2012, 10:23 by: Bret Jensen  |  includes: FLS, TTEK

I, like many other authors on Seeking Alpha, write a decent amount of articles on the energy sector. Oil is a crucial piece of the world economy and critical to the functioning of all industrialized societies. As critical as oil is to the global economy, water is much more critical to society as a whole. However, there are very few pieces in comparison to energy on stocks that are benefiting by the growing need in the world for potable water. Here are two stocks I believe will be long term winners riding the secular demand in the needed build out in both energy and water infrastructure.

Tetra Tech (TTEK)

Tetra Tech Inc., together with its subsidiaries, provides consulting, engineering, program management, construction management, and technical services for water, natural resources, environment, infrastructure, and energy sectors. (Business description from Yahoo Finance)

4 reasons TTEK is a buy at $22 a share:

  1. It is selling at the very bottom of its five year valuation range based on P/E, P/S, P/CF and P/B.
  2. Tetra Tech over the last half decade has grown its earnings at over 18% a year. Yet the stock is selling at less than 12 times forward earnings.
  3. The stock has a five year projected PEG of .85 and is priced at 76% of its annual revenues.
  4. The median analysts’ price target on TTEK is $26. The company looks to grow earnings smartly over the next few years. It earned $1.43 in FY2011; analysts are expecting $1.60 in FY2012 and $1.87 in FY2013.

Flowserve (FLS)

Flowserve Corporation develops, manufactures, and sells precision engineered flow control equipment. The company operates in three segments: FSG Engineered Product Division, FSG Industrial Product Division, and Flow Control Division segments. (Business description from Yahoo Finance)

4 reasons Flowserve has value at $102 a share:

  1. The stock is selling near the bottom of its five year valuation range based on P/E, P/B and P/CF.
  2. Despite growing earnings at an over 23% annual clip over the last five years, it has a forward PE of under 12.
  3. Flowserve is less dependent on the water industry than Tetra Tech, but is a fast growing part of their business. In addition to end water markets, FLS sells into the fast growing Oil & Gas infrastructure segment. The stock has a five year projected PEG of just .67.
  4. S&P has a “Strong Buy” rating on Flowserve and a price target of $130 on FLS. Credit Suisse has an “outperform” rating and a $135 price target on the stock.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FLS over the next 72 hours.