Water Stocks Float Higher in Price
IF you believe that the "drip, drip, drip" from a leaky faucet is relatively unimportant, talk to the citizens of California. They don't have enough water for personal, as well as industrial, needs. Water is also scarce - and increasingly costly - throughout the southwest United States, as well as parts of Africa, Asia, and Latin America.
That's why water-related companies, from environmental service firms to utilities and bottled water providers, have become hot stocks. In Milwaukee, Kemper Securities Group, Inc., a securities firm, will be holding its fourth annual conference on water-related companies for institutional investors in early May, says Richard Eastman, an analyst with Kemper. Water firms can be very good market players, "but are very hard to follow," he says. That's because so many different legal regulations and funding s ources are involved and technical diversity "can produce considerable volatility in earnings results."
"Water company stocks have done very well for us recently, slightly outperforming our other environmental stocks," says David Beckwith, manager of the Freedom Environmental Fund, with assets of about $57 million. The long-term growth fund, based in Boston, is part of the Freedom Group of Freedom Capital Management Corporation. It started up in September, 1989.
Freedom Environmental Fund has five basic sectors; hazardous waste management, which represents about 12 percent of the total portfolio; solid waste, about 30 percent; air purification, 16 percent; alternative energy companies, 20 percent; and water treatment companies, 22 percent. Water is slightly overrated, Mr. Beckwith says, because it has been such a good performer. Since the beginning of the year, Freedom's water stocks have been up around 15 to 16 percent, compared to 13 to 14 percent for the tot al portfolio of around 85 stocks.
Beckwith notes private industry plus federal and local government agencies in the US spend about $100 billion annually for environmental improvement programs. About one third of that - roughly $34 billion - is on water projects. That amount, in real dollars, will double by the year 2,000, he says.
Nor is the US unique. Spending on water-related projects in just the 12 European Community nations is expected to triple by the year 2,000, Beckwith says.
Much of the water news these days involves California, which has had five years of drought. A number of California communities are now considering building desalination plants, to convert seawater to fresh water. This spring, for example, Southern California Edison will start up a $2 million to $3 million seawater dasalting plant on Catalina Island, near Long Beach. Santa Barbara is studying plans for a plant. Other California communities are also eying plants.
Most of the desalination companies are giant corporations, such as Mitsubishi Heavy Industries, in Japan, and Bechtel, in the US. But there are also slightly smaller "environmental" firms, such as Ionics, Inc. Ionics, a water-purification company in Watertown, Mass., has the desalting contract with Santa Barbara.
Ionics, listed on the New York Stock Exchange, is one of 20 to 25 companies making up the water segment of Beckwith's environmental fund. Ionics provided much of the bottled water sent to coalition troops in the Gulf.
Other major water companies that Beckwith likes include Kurita Water Industries, Inc., one of Japan's biggest makers of water treatment equipment; Betz Laboratories, Inc., a Trevose, Pa. company which treats industrial, commercial and municipal water systems; Klein, Schanzin & Becker, a German company; Metcalf & Eddy, a waste treatment company engaged in the cleanup of Boston Harbor; Calgon Carbon, in purification programs; and Osmonics, which treats brackish water. The Freedom fund, however, doesn't cu rrently own any Osmonics stock.
Many of these companies have posted solid-to-impressive earnings over the past few years. Their stocks have correspondingly shot up in value.