An unbeatable argument used in the historic Florida land (swamp) sales scam in the thirties was "They are not making any more land". Therefore, it was implied, price can only go up. The same argument is now being used for selling water mutual funds. Obviously, it is a scam.
Let see how it is done.
MSN published an article titled: "Fresh water’s getting scarce, and it has no substitutes. For investors in companies that can supply our increasingly thirsty planet, that spells opportunity.By Jon D. Markman
"Not making any more water. There is no more fresh water on Earth today than there was a million years ago. Yet today, 6 billion people share it. Since 1950, the world population has doubled, but water use has tripled, notes John Dickerson, an analyst and fund manager based in San Diego. Unlike petroleum, he adds, no technological innovation can ever replace water.China, which is undergoing a vast rural-to-urban population migration, is emblematic of the places where water has become scarce. It has about as much water as Canada but 100 times more people. Per-capita water reserves are only about a fourth the global average, according to experts. Of its 669 cities, 440 regularly suffer moderate to critical water shortages. "
Up to here, it is all wrong. May I say - the author intends to confuse the reader. There is no absolute water scarcity. Anywhere. The problem may be drinking water, but that can be and is being made all the time by reverse osmosis and it costs only 0.5 US$/cu.m. (0.0005 $ per liter). Let continue to see if something merits consideration:
Although not widely appreciated, water has been recognized by conservative investors as an investment opportunity -- and it has rewarded them. Over the past 10 years, the Media General water utilities index is up 133%, double the return of the Dow Jones Utilities Index ($UTIL). Over the past five years, water utilities are up 32% -- clobbering the flat returns of both the Dow Jones Utilities and the Dow Industrials ($INDU).
One of water’s key long-term value drivers as an investment, according to Dickerson: Demand is not affected by inflation, recession, interest rates or changing tastes.
Virtually all of the U.S. water utility stocks are regulated by states and counties, which makes them pretty dull. Governmental entities typically give utilities a monopoly in a geographic region, then set their profit margin a smidge above costs. Just about the only distinguishing factor among them are the growth rates of their regions and their ability to efficiently manage their underground pipe and pumping infrastructure.
(Well, this is true. You always have to say something true to sell your lie.)
Among the best are Aqua America (WTR, news, msgs) of Philadelphia, Southwest Water (SWWC, news, msgs) of Los Angeles; California Water Service Group (CWT, news, msgs), based in San Jose, Calif.; and American States Water (AWR, news, msgs) of San Dimas, Calif.
(The continuation is another big chunk of hyperbole of the global, existencial need for water. Which is totally irrelevant to the subject - water utilities companies. )
In a moment, I’ll offer a couple of potentially more impactful ways to invest in water, but first let’s look a little more broadly at world demand.Aquifers in India are being sucked dryThe tsunami has focused attention on water demand in South Asia -- and it’s a good thing, as it was already reaching critical status in rural areas. Several decades ago, farmers in the Indian state of Gujarat used oxen to haul water in buckets from a few feet below the surface. Now they pump it from 1,000 feet below the surface. That may sound good, but they have been drawing water from the earth to feed a mushrooming population at such a terrific rate that ancient aquifers have been sucked dry -- turning once-fertile fields slowly into sand. According to New Scientist magazine, farmers using crude oilfield technology in India have drilled 21 million "tube wells" into the strata beneath the fields, and every year millions more wells throughout the region -- all the way to Vietnam -- are being dug to service water-needy crops like rice and sugar cane. The magazine quoted research from the annual Stockholm Water Symposium that the pumps that transformed Indian farming are drawing 200 cubic kilometers of water to the surface each year, while only a fraction is replaced by monsoon rains. At this rate, the research suggested, groundwater supplies in some areas will be exhausted in five to 10 years, and millions of Indians will see their farmland turned to desert.
In China, the magazine reported, 30 cubic kilometers more water is being pumped to the surface each year than is replaced by rain -- one of the reasons that the country has become dependent on grain imports from the West. This is not just an issue for agriculture. Earlier this year, the Indian state of Kerala ordered the PepsiCo (PEP, news, msgs) and Coca-Cola (KO, news, msgs) bottling plants closed due to water shortages, costing the companies millions of dollars. In this country, shareholder activists already are lobbying companies to share water-dependency concerns worldwide with their stakeholders in their financial statements. Water, water everywhere, but . . .The central problem is that less than 2% of the world’s ample store of water is fresh. And that amount is bombarded by industrial pollution, disease and cyclical shifts in rain patterns. Its increasing scarcity has impelled private companies and countries to attempt to lock up rights to key sources.
In an article last month, the Christian Science Monitor suggested that the next decade may see a cartel of water-exporting countries rivaling the Organization of Petroleum Exporting Countries for dominance in the world economy."Water is blue gold; it's terribly precious," Maude Barlow, chair of the Council of Canadians, told the Monitor. “Not too far in the future, we're going to see a move to surround and commodify the world's fresh water. Just as they've divvied up the world's oil, in the coming century, there's going to be a grab."
(After a long rethorical fly in a totally irrelevant part of the sky, the author lands on Earth: the plodding uninteresting water utility stocks).
Besides the domestic water utilities listed above -- and similarly plodding foreign utilities such as United Utilities (UU, news, msgs) of the United Kingdom, which sports a 6.9% dividend yield, and Suez (SZE, news, msgs) of France -- investors interested in the sector can consider a number of variant plays. None are extremely exciting, but my guess is that, over the next few years, some more interesting purification technologies will emerge, along with, perhaps, a vibrant attempt at worldwide industry consolidation.
(Well, we will have to wait to see the vibrant consolidation. In the meamwhile, they are plodding ahead. Now the author points out some individual companies related to the water industry. Some of them are interesting, some of them not, but I would not say they are specifically water stocks. They are general fluid control industries. Good, solid, established, conventional companies. Nothing special).
One current idea is Tennessee-based copper pipe and valve maker Mueller Industries (MLI, news, msgs), a $1 billion business with a trailing price/earnings multiple of 15 that is still not expensive despite a 47% run-up in the past year. Its leading outside investor is Berkshire Hathaway (BRK.A, news, msgs), the investment vehicle of legendary investor Warren Buffett.
Another is flow-control products maker Watts Water Technologies (WTS, news, msgs), which is a little richer at a $975 million market cap and a trailing P/E multiple of 19, but is still owned by several leading value managers, including Mario Gabelli. And possibly the most interesting is Consolidated Water (CWCO, news, msgs), a $160 million company based in the Cayman Islands that specializes in developing and operating ocean-water desalinization plants and water-distribution systems in areas where natural supplies of drinking water are scarce, such as the Caribbean and South America. It currently supplies water to Belize, Barbados, the British Virgin Islands and the Bahamas, and it has expansion plans. It is the most expensive, but it may also have the greatest growth prospects. Of all of these, it is up the most over the past five years, a relatively steady 355%.Of course, there is one othe benefit to water investing: When these companies say they’re going to do a dilutive deal, it’s not something to worry about. "
( Oh, how gullible he thinks we are?? 355% in 5 years? It is indeed very attractive. But it is a scam. I could go and select 10 stocks in any industry that went up 355% in the last 5 years. It is easy, since it is a selection based on past performance. What I cannot do and neither the author is to select 10 firms in the water industry that will go up even 50% in the coming years. It is much more difficult to predict the future than the past...)
Now the nice part: PrintDickerson runs a hedge fund in San Diego strictly focused on water investing, the Summit Water Equity Fund. . . To learn more about Southwest Water, click here. . . . To learn more about California Water Service Group, which runs systems in New Mexico, Hawaii and Washington State, as well as California, click here. . . . To learn more about American States Water, click here. . . To learn more about Mueller, click here, and, for Consolidated Water, click here. . . .
(The article is a strange mix of fashionable ecological rethorical bla bla about the worldwide crisis of water, which God stopped making a time ago, and how the Chinese, the Indians, and the Africans are suffering ... and some comments on the real plodding regulated water utilities industry. And it ends in recommending some solid, conventional, fluid mechanics companies, whose relation to the water industry is marginal at best. It is like talking half an hour about the terrible famine in Niger and how important food is, and recommending some stock like Caterpillar, which only a totally ignorant person may imagine profiting from African famines. Truth seems to be that there is no water industry to be invested in, at least, at this moment in history. )
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Post Scriptum: I searched who the guru Dickerson was and it appears that he is the owner of Summit Investment. His investment credo is extremely conventional and conservative - and I like it very much. His website proclaims:
"We are more business appraisers than stock analysts, scrutinizing the fundamental characteristics of a company - balance sheet, market value of assets and liabilities, potential catalysts - to determine its true value. We only invest if we can identify an exploitable difference between the market price of a company's securities and the amount a well-informed, discriminating businessperson would realistically pay for the entire enterprise. We will not invest at the appraised value, only at a significant discount."
- John I. Dickerson, President
Summit stands apart from the confusing universe of advisory firms mislabeled as "value" investors simply because the securities they purchase are relatively cheap within a given industry. These firms are dependent on inherently unreliable estimates, including future earnings and the direction of entire industries, while their purchases are often overvalued by more objective analysis. Conversely, Summit's disciplined Discount to Appraised Value approach - refined through years of careful investing - remains faithful to the principles of value as originally set forth by Benjamin Graham and David Dodd in the 1934 classic Security Analysis. Summit finds value in a company when the market price of its securities is appreciably less than the intrinsic value of the operation as a whole. We identify these anomalies in U.S. and global financial markets through intensive proprietary research, advanced analytical tools, direct management communication and an extensive network of like-minded contacts. Our methodology often leads to small and medium-sized companies, which tend to receive little research attention from Wall Street and are usually undiscovered, unpopular or misunderstood. Summit builds client portfolios from the bottom up, one company at a time, carefully acquiring shares in the open market at prices that meet our Discount to Appraised Value criteria. We are an active management team, searching for (or helping to create) catalysts that may unlock unrealized values, but we are not over-active, often holding stocks for several years rather than risking our clients' futures trying to time the market. While providing significant upside potential, the greatest strength of our Discount to Appraised Value technique is that it promotes our goal of minimizing risk in every market environment. When a popular company enjoying high expectations falters, the damage to its stock is immediate and severe. Our approach generally leads us to companies with low investor expectations and depressed stock prices, which means negative developments cause little further price decline while positive events promise substantial reward.
Well, I could sign that. Hard work in the less researched universe of companies, special situations maybe, that is what I try to do. I presume Mr Dickerson was misused in this imbecile article on water. He probably was unaware that he was being quoted in the context of worldwide water scarcity environmental context.
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