Wednesday, July 29, 2009

Volume 3, Issue #70

Also in Today's Issue...

Water is essential for life. It's quite literally an investment that you can't live without. And while you might not be able to trade water futures on the Chicago Board of Trade, providing people with H2O is a $400 billion global industry, according to an article by Harvard's Garry Emmons.

"In an age of global water scarcity, with governments scrambling to create new water systems or repair deteriorating ones, there is money in water,"he says. And Emmons isn't the only expert who thinks water is soon to be a very valuable commodity. "Water is going to be more important than oil in the next 20 years,"predicted Dipak Jain, dean of the Kellogg School of Management at Northwestern University, to Bloomberg.

That's thanks in large part to your local water utility. While cities and municipalities run 85% of water utilities, there are scores of for-profit companies left over to turn water into cash.

Utilities have become popular with investors in recent years for two reasons: stable sales and dividends. In most places, electric, gas and water utilities are highly regulated by the government, and they're often allowed to operate as pseudo-monopolies in their markets. Couple that with the relatively level demand of utility customers and you have a recipe for fairly predictable sales numbers from quarter to quarter.

Utilities are also among the best dividend-paying industries.
But while that's proved to be a great combination for investors who are looking for slow growth and slow income, growth-hungry small-cap investors have typically eschewed utilities for those very reasons. Until now...

Claim Your Stake in This Water Utility Stock
We've recently caught wind of a small-cap water utility based in the U.K. The company provides water and wastewater services to more than four million customers in seven countries. The company's international exposure is what makes it especially interesting for investors looking for high growth -- by entering new markets, the company managed to grow its sales 10 times faster than the rest of the industry.

Our unique water utility investment focuses on providing water services to developing countries with quickly expanding water needs. In addition to the U.K., the company has operations in South Africa, Indonesia, China, Chile, Panama and the Philippines. And in the last year alone, it's managed some impressive milestones.

In China, a country where a quarter of the population doesn't have access to safe water, the company secured two new projects that will eventually serve a combined one million people. It announced record new connections at its local subsidiary in the Philippines. And one of this utility's biggest new South African customers is the new FIFA soccer stadium currently under construction -the stadium will be home to the World Cup in 2010.

Why This Stock Could Jump 166%
From a value perspective, we've got our eye on an impressive stock. Of all the small-cap water utilities currently trading, this company has the lowest P/E ratio. That means that you're paying less for each dollar of our stock's income performance than you would for any other company in its class.

The average P/E for profitable water utilities right now is 23. For our small-cap utility to trade at the average, its share price would be $9.70 -- a full 166% gain from where it is now.

Part of the reason for that is the low profile the company has taken since it went public. This company's shares weren't traded on U.S. markets until the beginning on 2008, just as the stock markets were starting their yearlong descent. As more investors become aware of what this company is capable of, you can expect its share price to make its way back toward the $5-10 range.

Cheers,

-- Jonas Elmerraji
Contributing Editor
Penny Sleuth

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