Over the last 8 months, I’ve ramped up, learning more and more about the global water situation. I’ve started learning about some of the figures who continually popped up in the conversation.

This weekend, I found a short analysis over at the BBC, written by Dominic Waughray, Senior Director and head of environmental initiatives at the World Economic Forum, Geneva. He is one leader in the space, and I’m going to follow more. Waughray has a good handle on things. Some great coverage of the issues has been written recently:

As an investor in Tetra Tech, I am extremely pleased with the new acquisition of Wardrop Engineering, announced a couple days ago.

The acquisition expands TetraTech by 1200 employees who have worked together in over 50 countries, operating 13 offices in Canada, plus 6 international offices spanning USA, UK, Ghana, India and China.

Heckmann Corp (HEK) owns a 48% stake in China Bottles. China Bottles recently submitted to the SEC that they had “comprehensive income” of $8.8M and $7.7M in net income, on $38.3M in revenue, for the first 6 months of this year.  China Bottles is aiming to double capacity by 2010.

This is due, among other reasons, to their estimate that the PET packaging industry will have a 9% CAGR between now, and 2015.

Terex (TEX) sells cranes, among other things.  This is a play on urbanization.  You’ve heard the word before.  It’s this generation's form of the baby boom, sort of.  People all over the planet are moving towards cities.  It started when condos started skyrocketing a decade ago, or so.  They also sell equipment for mining, forestry, roads, and recycling.

They just announced earnings tonight, and beat by a mile.  They reiterated sales targets but warned margins would be hurt by rising steel costs.  They said they were going higher with their own prices to reflect this problem.

Earlier this week Canadian Solar (CSIQ) increased the mid-range of their revenue guidance by 13%.  Then, that same evening, they announce they were diluting shares by offering 3.5 Million new ones at $34 each.  A significant dilution.  The shares surged, then have since pulled back - appropriately.

But take a look at this, the last four quarters earnings are, according to yahoo finance, in order:

Earlier this week Canadian Solar (CSIQ) increased the mid-range of their revenue guidance by 13%.  Then, that same evening, they announced that they were diluting shares by offering 3.5 Million new ones at $34 each.  A significant dilution.  The shares surged, then have since pulled back - appropriately.

But take a look at this, the last four quarters earnings are, according to Yahoo Finance, in order:

Johnson controls released a press release yesterday discussing the details about a new win they had for some water chillers in Bahrain. Now, normally Johnson Controls would never cross your mind as a ‘water play’, but in the press release they said:

“We see this [the Bahrain order] as the beginning of a new trend of using seawater as cooling water for large district cooling plants in the Middle East region. Johnson Controls has the best suitable equipment for such application, we expect to gain a leading position in this potentially fast growing market segment,”

Johnson Controls (JCI)  released a press release Tuesday discussing the details about a new win they had for some water chillers in Bahrain. Now, normally Johnson Controls would never cross your mind as a ‘water play’, but in the press release they said:

We see this [the Bahrain order] as the beginning of a new trend of using seawater as cooling water for large district cooling plants in the Middle East region. Johnson Controls has the best suitable equipment for such application, we expect to gain a leading position in this potentially fast growing market segment,

The slide show Richard Heckmann et. al, has made to encourage investors to buy shares in his SPAC (HEK) shows a CAGR of 17.5% for the market of Chinese bottled water drinkers.

Here is the data (at least I believe) he referenced. Just wanted to share.

Energy Recovery (ERII) is the latest addition to publicly available investment vehicles for the world’s looming water problems.  They sell technology that reduces the fraction of unused energy during sea water reverse osmosis [SWRO], one method of desalination. They are tentatively scheduled to IPO today.  Nobody, that I’m aware of, has commented publicly on the deal, specifically with respect to either the economics behind SWRO plants nor the valuation of the target of $7 - $9.

With respect to the economics behind the plants they sell to, they are popping up all over the world, so the numbers must work.  It’s obvious the customer base will likely continue to grow.  I didn’t quite finish my research in time for the IPO but I was curious as to what fraction of the bills of a new plant are likely spent on the types of technology Energy Recovery sells, to try and estimate the size of the market. 

I think the creators of (FAN), a brand new fund that is going to track the ISE Global Wind Energy Index, earned their 0.6% fee. Here’s why: Only 18 of the 52 stocks in the fund are available to North American retail investors without going over the counter, or paying for international data feeds.

That liquidity and accessibility to these truly global investment securities is worth something, to many people. Now I’d say, I wish the fund didn’t have 4, of those 18, which are hardly ‘wind’ investments (General Electric (GE), Siemens (SI), Shell (RDS.A) and BP (BP) are ~5% of fund).

From Heckmann's (HEK) S-4 filed June 16th 2008:

On June 12, 2008, China Water (CWDK.OB) executed a definitive agreement relating to the acquisition of 67% of the equity of Guangzhou Grand Canyon Distilled Water Co. Ltd. (“Grand Canyon”), a distilled bottled water producer and distributor that has an established brand awareness, a well-established distribution network in Guangdong Province, and an annual production capacity of 240.2 million small bottles and 9.6 million carboy bottles. The consideration for the acquisition will consist of $19.1 million, payable in cash at closing. China Water believes the consolidation with this producer will further elevate brand awareness and that China Water will benefit from the joined network and platform. China Water expects that the acquisition will close in the late second or third quarter of 2008.

I’m a skeptical and analytic person, but I think HEK still has upside…unless it’s a scam.  (No offense Dick H.)  I started a position at $8.27, upon the first few days of the stock showing strength.  I was a little skeptical, because the stock was just too much of a bargain.  I say this because of the guidance combined with likely valuation multiples, the macro economic trends, and Dick Heckmann’s track record.  The fact that the stock didn’t jump into the low teens made me feel like there was something I was missing.  I set out to figure out what.

Like every other person holding HEK, after the deal closes, I will own a tangled mess of subsidiaries, as well as a history so convoluted retail investors may give up trying to sort it out.  See, Heckmann is buying a company, China Water & Drinks, which is actually an amalgamation of 11 subsidiaries, with some more on the way.  The summation of these groups and holding companies now sells bottled water in China. The parent company which merged with China Water & Drinks, UGODS Inc,. used to be a junior mineral explorer in Canada. If you didn’t read that last part twice, check your pulse. This is according to SEC filings, and the China Water & Drink 2007 Annual report.

Expanding on the thesis of macro economic & demographic trends associated with two increasing bodies of middle-class populations, Colgate (CL) entered my peripheral view. The picture became clear as the company is likely to benefit from a second round of international growth.  Latin America has contributed to climbing sales, and Asia should do the same.  That’s why I thought that at 23x Colgate was fairly valued and while it may be slightly over extended this week on the technicals, the long term chart looks good to me.

Interesting fact: It has 44% of the world’s toothpaste sales.

The trends are scary for the things that we are running out of, and fresh water is on that list. It’s what has sparked ETFs like PowerShares Water Resource Portfolio (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 just long, and I think, contains every stock that has anything remotely close to ‘Water’ in the company description. However, 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 got blasted, no - torn apart - at Seeking Alpha, by perma-bull-gold-bugs (aka the most depressing people in the world), when I wrote that I was getting out of leveraged gold, back as gold was moving up towards the $950 zone. I’ve never had an “I told you so” feel better, I mean people were personally attacking me. I’ll admit here, the call was a little lucky, but to your face I’ll say it was 100% skill

This was after this note to readers, to buy Yamana warrants when they hit $2.25. 13 days later, they hit $4.60. (I didn’t know the call I made was going to be that good.) I took some amazing profits, and closed everything in the $4 - $4.60 range.

Predictions are lame, but I can’t resist, because they are also fun.

Johnson Controls (JCI) announces Q2 for 2008 this Wednesday, April 16th. For more reasons than I have time to blog, I am going to predict they announce in-line, and either reiterate or up guidance (and if they do beat or up guidance, it will be marginal). I think last quarter they were being conservative with numbers because of fears in the economy that they couldn’t control - despite them verbally saying otherwise.

I don’t have enough time to comment on this properly, but I wanted to share it with my readers, especially those who do not have access to trailing/intraday option data.  Here is Thursday's chart for $30 April 2008 puts on LEH, interesting - no?

What an amazing week in the capital markets. The Fed cut 75 basis points, gold had its biggest weekly decline in a quarter century, the S&P had its biggest one day rally in half a decade, and a great, nearly century-old brand collapsed. It left me exhausted, but I still found time to read up on two great ideas: American Ecology Corporation (ECOL) and Clean Harbors (CLHB).

ECOL and CLHB are two companies in a similar sector. Both are fairly small cap and show great strength, considering the market. Hazardous waste doesn’t wait for recessions to be over. Both are well positioned to keep performing into the future. American Ecology looks more reasonably valued when compared to Clean Harbors; however both operate with lots of room for growth.

Pulp producers who farm eucalyptus and profit from the plant’s unique 7 year cycle as opposed to those producing from hardwood’s cycle, which lasts decades, are starting to reap the benefits. This is because of the global economy’s specialization of the producers.

Apparently it’s really easy to grow in Brazil, and almost impossible to grow it in North America. North American pulp producers are going to have an increasingly harder time competing in a global economy because the turn over of their trees is not quick enough.