The Prudent Investor


First examination of the direction of the portfolio
January 5, 2007, 10:15 am
Filed under: Water Utilities

While I wait for my account to be set up and funded, I have time to start things off by looking at companies that might properly fill the portfolio. To begin, I’m going to look at the sectors that are available:

  1. Basic Materials
  2. Conglomerates
  3. Consumer Goods
  4. Financial
  5. Healthcare
  6. Industrial Goods
  7. Services
  8. Technology
  9. Utilities

A diversified portfolio would include a variety of market capitalizations from each sector. There is no way that I can do this, so I will simply be looking to avoid redundancy in my selections.

My plan is to begin conservatively, then add risk as I add companies. When we think conservative, we immediately look to Utilities, so that will be my starting point. Here are the industries within the Utilities sector:

  1. Diversified Utilities
  2. Electric Utilities
  3. Foreign Utilities
  4. Gas Utilities
  5. Water Utilities

Since my intention is to look well into the future, I am going to submit that Water Utilities are the best place to place my initial money. Water is everywhere (70% of the earth is covered with water), but the problem is that only 3% is fit for humans to consume, the other 97% being salt water, which cannot be drunk or used in agriculture. Of that small portion, you can rule out two-thirds because it is frozen. That leaves us with only 1%. Put another way, if the world’s water was a gallon, the available fresh water would be a little more than just two tablespoons.

There are many forms of energy, and the importance of each could change significantly in the future. However, there is only one form of water, and whereas there is no more water now than there was a million years ago, there are twice as many people now as there were fifty years ago, so the importance of this resource is significant. This is the direction I will be taking.

Looking to remain conservative, I would like to examine only the largest companies in this area.

  1. AQUA AMERICA INC [WTR] $3.0 B
  2. CALIFORNIA WATER SVC [CWT] $818.6 M
  3. S J W CP [SJW] $731.8 M
  4. AMER ST WATER [AWR] $657.2 M
  5. SOUTHWEST WATER CO [SWWC] $314.0 M
  6. MIDDLESEX WATER CO [MSEX] $218.7 M
  7. CONN WATER SVCS IN [CTWS] $190.8 M
  8. YORK WATER CO (THE [YORW] $186.8 M
  9. BASIN WATER INC [BWTR] $132.0 M
  10. ARTESIAN RES CP A [ARTNA] $114.6 M

Do I need to look closely at all of them? Probably not, as I am guessing that there will be something about several of them that will cause me to remove them from consideration. I’ll begin tossing in my next post.

Advertisements

1 Comment so far
Leave a comment

Just came upon your site tonite in looking for comments on SWWC. I too was put off a little by the higher PE, but liked their growth even if it is thru aquisition. They seemed a little more spread out as well. Another comment/question was concerning the evolution of desalinization plants.
You mention the growth of population against a backdrop of limited supply and though there might be near term supply/demand issues providing selling opprotunities, these plants might fill that void in time. Do you know of any companies that “do” desalinization? thanx

Comment by e c




Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s



%d bloggers like this: