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I am thinkning of one of the above in IRA for next 20 to 30 years. I know this is too narrowly focused, but I would like to get some exposure to water infrastructure. It will be like gold in couple of decades.
I have some in the Allianz fund. I've thought about investing in individual water equities and would love an investment with water rights, but in the meantime, I do have an investment in AWTDX as I agree, water is going to be a big issue globally going forward - look at the data recently with reports of more than half of China's groundwater being polluted (http://www.theguardian.com/environment/2014/apr/23/china-half-groundwater-polluted.)
@Mulder420, Scott, & Other MFO Members: Regards, Ted Copy & Paste 5/3/14 Jack Hough Barron's
The Many Ways To Tap The Water Boom:
A perfect storm is brewing, water is the 21st-century oil," wrote Bank of America Merrill Lynch in a 133-page report last month. BofA calls water scarcity a "global megatrend" and says "investors need to go blue." Credit the bank's conservation efforts; it has been recycling that report for a few years now. Returns for the theme have been just OK. The S&P Global Water index has returned 12.1% on average over the past three years, beating the 9.5% return for the broad S&P Global 1200, but falling short of the 13.9% return for the U.S.-focused Standard & Poor's 500 index.
The opportunity may indeed be more compelling than recent returns suggest. Water infrastructure is crumbling in the U.S., but municipalities have delayed spending to help balance their budgets. That has created enormous pent-up demand for pipes, pumps, and wastewater-treatment gear, and water main breaks are now occurring more frequently from San Francisco to Milwaukee to Springfield, Mass. In emerging markets, growing middle classes are consuming more water-intensive goods like meat, and clamoring for things Americans take for granted, like the ability to draw a clean glass of tap water.
The problem with theme investing, however, is that some key factors that drive stock returns have nothing to do with the themes. Chief among these is valuation; the price an investor pays is easily as important to long-term returns as what he buys. The S&P Global Water index recently traded at 23 times trailing earnings, versus 18 times for the S&P 500. Investors with a thirst for water exposure must be careful not to pay too much. Promising names include Rexnord (ticker: RXN), HD Supply Holdings (HDS), American Water Works (AWK), and two others belo
Our blue planet holds plenty of water, but only 2.5% of it is fresh. The amount of fresh water has fallen 35% since 1970, as ground aquifers have been drawn down and wetlands have deteriorated. Meanwhile, demand for water-intensive agriculture and energy is soaring. Overall water demand is on pace to overshoot supply by 40% by 2030. Water scarcity will damp long-term economic growth unless governments spend more to recycle wastewater, turn salt water into fresh, and build smarter plumbing. BofA therefore expects companies that meet these needs to deliver outsize growth for many years.
BUT INVESTORS MUST PAY attention to other factors, too. For example, now is a good time for stock buyers to turn their attention from pumps to plumbing, says Matt Sheldon, manager of the Calvert Global Water fund (CFWAX), which has returned 12.9% a year over the past three years, ranking among the top 2% of natural-resources funds, according to Morningstar. A boom in hydraulic fracturing of oil and gas reserves over the past decade sent demand for pumps soaring, and provided outsize returns for companies like Flowserve (FLS). Its stock price has multiplied 10 times over the past 10 years. But growth there has slowed and shares look fully priced. Flowserve is expected to increase its revenue by less than 4% this year, and its shares go for 19 times this year's earnings forecast.
Meanwhile, a rebound in the U.S. housing market should drive improving results for companies that sell plumbing systems to builders and municipalities. Sheldon likes Rexnord, which makes valves, floodgates, backflow preventers, and other water products. Its revenues are expected to increase by 7% this fiscal year, which runs through March 2015. Its shares go for 16 times earnings.
HD Supply, an 8% revenue-grower, sells a broad line of building and maintenance supplies, and is seeing particularly brisk growth from its waterworks division. The company, a former unit of Home Depot, went public and swung to a full-year profit last year. Shares go for 20 times this year's earnings forecast, but earnings are still ramping up quickly from a low base. The price/earnings ratio drops to 13 based on next year's forecast and to less than 10 based on 2016. Last August we wrote that shares were poised for 20% upside over the coming year (Aug. 12, "The Home Depot of Commercial Construction"). They're up 11% since then, on par with the S&P 500.
Utilities offer another way into water. American Water Works is the largest investor-owned water and wastewater utility in the U.S., with customers in 40 states. For utilities, aging water infrastructure represents not only a future cost, but a future profit. That's because regulators allow them to invest in infrastructure at handsome returns on equity, and in many states, if realized returns fall behind projected ones, utilities can top them up with customer surcharges. American Water Works is expected to increase its revenue by 7% this year, and shares sell for 19 times this year's earnings estimate. Janney Capital Markets cites the stock as a favorite utility in part because of the potential for stable and rising income. Shares yield 2.7% and management links its payout to earnings, which Janney predicts will grow 7% to 10% a year over the long term.
China represents a top opportunity for water investments in emerging markets, says BofA. In China, all those coal-fired power plants account for 20% of total water consumption, and that figure could rise to 40% over the next decade. Beijing Enterprises Holdings (392.Hong Kong) has a hand in water treatment and sewage, along with toll roads, beer, and gas pipelines. Its shares go for 18 times this year's earnings forecast. That looks inexpensive compared with its projected revenue growth of 16% this year and 21% next year.
EMERGING MARKETS STOCKS aren't the only way to invest in emerging markets, says Andreas Fruschki, manager of the AllianzGI Global Water fund, which ranks among the top 6% of natural resources funds for three-year performance, according to Morningstar. Fruschki's fund has only a 10% stake in companies based in the emerging markets; he prefers to invest in those markets through global companies that sell there. Danaher (DHR) was recently the fund's top holding. It's an acquisition-driven company that focuses on niche markets, and has a hand in water analysis and treatment, test equipment for electronics and medical research, and more. Revenue is expected to grow 5% this year. Danaher shares go for nearly 20 times this year's earnings forecast, but earnings understate the amount of cash the company generates because of charges related to past deals. Shares go for less than 17 times this year's projected free-cash flow.
I own AWTIX and plan on holding for the long haul. I traveled to China for 30 plus years. They would just throw their garbage in the rivers. Most of the environmental problems never get reported. A real mess. Mitchelg
Comments
Regards,
Ted
Copy & Paste 5/3/14 Jack Hough Barron's
The Many Ways To Tap The Water Boom:
A perfect storm is brewing, water is the 21st-century oil," wrote Bank of America Merrill Lynch in a 133-page report last month. BofA calls water scarcity a "global megatrend" and says "investors need to go blue." Credit the bank's conservation efforts; it has been recycling that report for a few years now. Returns for the theme have been just OK. The S&P Global Water index has returned 12.1% on average over the past three years, beating the 9.5% return for the broad S&P Global 1200, but falling short of the 13.9% return for the U.S.-focused Standard & Poor's 500 index.
The opportunity may indeed be more compelling than recent returns suggest. Water infrastructure is crumbling in the U.S., but municipalities have delayed spending to help balance their budgets. That has created enormous pent-up demand for pipes, pumps, and wastewater-treatment gear, and water main breaks are now occurring more frequently from San Francisco to Milwaukee to Springfield, Mass. In emerging markets, growing middle classes are consuming more water-intensive goods like meat, and clamoring for things Americans take for granted, like the ability to draw a clean glass of tap water.
The problem with theme investing, however, is that some key factors that drive stock returns have nothing to do with the themes. Chief among these is valuation; the price an investor pays is easily as important to long-term returns as what he buys. The S&P Global Water index recently traded at 23 times trailing earnings, versus 18 times for the S&P 500. Investors with a thirst for water exposure must be careful not to pay too much. Promising names include Rexnord (ticker: RXN), HD Supply Holdings (HDS), American Water Works (AWK), and two others belo
Our blue planet holds plenty of water, but only 2.5% of it is fresh. The amount of fresh water has fallen 35% since 1970, as ground aquifers have been drawn down and wetlands have deteriorated. Meanwhile, demand for water-intensive agriculture and energy is soaring. Overall water demand is on pace to overshoot supply by 40% by 2030. Water scarcity will damp long-term economic growth unless governments spend more to recycle wastewater, turn salt water into fresh, and build smarter plumbing. BofA therefore expects companies that meet these needs to deliver outsize growth for many years.
BUT INVESTORS MUST PAY attention to other factors, too. For example, now is a good time for stock buyers to turn their attention from pumps to plumbing, says Matt Sheldon, manager of the Calvert Global Water fund (CFWAX), which has returned 12.9% a year over the past three years, ranking among the top 2% of natural-resources funds, according to Morningstar. A boom in hydraulic fracturing of oil and gas reserves over the past decade sent demand for pumps soaring, and provided outsize returns for companies like Flowserve (FLS). Its stock price has multiplied 10 times over the past 10 years. But growth there has slowed and shares look fully priced. Flowserve is expected to increase its revenue by less than 4% this year, and its shares go for 19 times this year's earnings forecast.
Meanwhile, a rebound in the U.S. housing market should drive improving results for companies that sell plumbing systems to builders and municipalities. Sheldon likes Rexnord, which makes valves, floodgates, backflow preventers, and other water products. Its revenues are expected to increase by 7% this fiscal year, which runs through March 2015. Its shares go for 16 times earnings.
HD Supply, an 8% revenue-grower, sells a broad line of building and maintenance supplies, and is seeing particularly brisk growth from its waterworks division. The company, a former unit of Home Depot, went public and swung to a full-year profit last year. Shares go for 20 times this year's earnings forecast, but earnings are still ramping up quickly from a low base. The price/earnings ratio drops to 13 based on next year's forecast and to less than 10 based on 2016. Last August we wrote that shares were poised for 20% upside over the coming year (Aug. 12, "The Home Depot of Commercial Construction"). They're up 11% since then, on par with the S&P 500.
Utilities offer another way into water. American Water Works is the largest investor-owned water and wastewater utility in the U.S., with customers in 40 states. For utilities, aging water infrastructure represents not only a future cost, but a future profit. That's because regulators allow them to invest in infrastructure at handsome returns on equity, and in many states, if realized returns fall behind projected ones, utilities can top them up with customer surcharges. American Water Works is expected to increase its revenue by 7% this year, and shares sell for 19 times this year's earnings estimate. Janney Capital Markets cites the stock as a favorite utility in part because of the potential for stable and rising income. Shares yield 2.7% and management links its payout to earnings, which Janney predicts will grow 7% to 10% a year over the long term.
China represents a top opportunity for water investments in emerging markets, says BofA. In China, all those coal-fired power plants account for 20% of total water consumption, and that figure could rise to 40% over the next decade. Beijing Enterprises Holdings (392.Hong Kong) has a hand in water treatment and sewage, along with toll roads, beer, and gas pipelines. Its shares go for 18 times this year's earnings forecast. That looks inexpensive compared with its projected revenue growth of 16% this year and 21% next year.
EMERGING MARKETS STOCKS aren't the only way to invest in emerging markets, says Andreas Fruschki, manager of the AllianzGI Global Water fund, which ranks among the top 6% of natural resources funds for three-year performance, according to Morningstar. Fruschki's fund has only a 10% stake in companies based in the emerging markets; he prefers to invest in those markets through global companies that sell there. Danaher (DHR) was recently the fund's top holding. It's an acquisition-driven company that focuses on niche markets, and has a hand in water analysis and treatment, test equipment for electronics and medical research, and more. Revenue is expected to grow 5% this year. Danaher shares go for nearly 20 times this year's earnings forecast, but earnings understate the amount of cash the company generates because of charges related to past deals. Shares go for less than 17 times this year's projected free-cash flow.
30 plus years. They would just throw their garbage in the rivers. Most of
the environmental problems never get reported. A real mess.
Mitchelg