With the drought throughout the West Coast continuing for its fourth year, there are plenty of companies that may have movement tied to the epidemic.
While it’s not all bad news for the market, there may be trouble for hydropower, traditional utilities and agriculture.
Most of these sectors are weighted so that when one slips, another benefits (and sets up for potential rallies).
Below are a few potential surprise winners amid the arid California climate, and a few that deserve close attention because they might slip if the rains don’t come soon.
Although the knee-jerk reaction may be to completely avoid all stocks that have anything to do with water resources, this reaction could result in some serious missed opportunities. Play the sector smartly: start by considering water tech companies.
With a market cap over $34 billion and 297.80 million shares, this water tech and service provider takes an interest in many things water. Ecolab is devoted not just to food and beverage processing hygiene, but industrialization and its reliance on water, from tech-driven solutions for oil/gas production, petrochemical industries, drilling and refining to pest control and eradication.
Q1’15 net profit margin came in at 7.14%, with a return on average equity at 13.20%.
Ecolab was recently seen trading in the $114.03 – $115.24 range.
This diversified tech company offers products for water testing and analysis (leak testing equipment, metering equipment, water meter readers, non-destructive inspection products). Roper Technologies has a market cap around $17.4 billion and 100.52 million shares.
Q1’15 net profit margin came in at 18.00%, with 13.07% return on average equity.
Roper Technologies was recently seen trading in the $173.57 – $175.89 range.
Flowserve has a market cap of around $6.9 billion and has 134.45 million shares. Devoted to the development of precision-engineering, Flowserve designs, manufactures and distributes equipment related to meticulous, industrial-related equipment.
Q1’15 resulted in a net profit margin of 2.92%, and was attached with a 6.03% return on average equity.
Flowserve recently traded in the $51.46 – $51.96 range.
However, utility stocks do deserve to be handled with care. Instead of completely avoiding everything remotely related to water, balance your portfolio by investing in ETFs and other such funds.
While heavily weighted water utility portfolios like PowerShares Water Resources Portfolio (NYSE:PIO) ETF have been affected (and will likely continue to be), other funds that have exposure to water, like the PowerShares Water Resources Portfolio (NYSE:PIO) ETF are rallying after seeing a low of $15.03 in mid-December 2011 to around the $23.83-$23.97 range seen recently.
It would be prudent to keep solar in your crosshairs as hydropower falls. That being said, broader utilities and those invested in energy technology and advancement deserve attention.
Potentially Reliable Rallies:
First Solar has a current market cap of just over $5 billion and has 100.82 million shares. As a global provider of solar energy solutions, First Solar is one of the continuing top performers in the solar sector.
Q1’15 had a net profit margin of -13.24% and a return on average equity of -4.99%.
First Solar traded recently in the $47.78 – $49.17 range.
General Electric has a market cap of around $267 billion and currently has 10.08 billion shares. As a diversely-focused electric company, General Electric is involved in power and water, oil and gas, energy-based management, healthcare, appliances and transportation.
Q1’15 had a net profit margin of -38.85% and -38.54% return on average equity.
General Electric recently traded in the $26.60 – $26.97 range.
As a holding company, NextEra operates through Florida Power & Light Company and NextEra Energy Resources, LLC. NextEra has a current market cap of around $44 billion and has 444.00 million shares. This electric utilities company is devoted to generation, transmission and distribution of electric energy.
Q1’15 resulted in a net profit margin of 15.84% and 12.99% return on average equity.
NextEra recently traded in the $97.71 – $99.81 range.
This water and wastewater utility holding company provides water-related services to approximately 15 million people in the U.S. and Canada. American Water Works has a market cap of around $8.9 billion.
Q1’15 had a net profit margin of 11.47% and 6.48% return on average equity.
American Water Works traded recently in the $49.26 – $49.73 range.
Regardless of how you play the California drought, keeping a balanced and diversified portfolio with exposure to utilities and energy can only prove beneficial. Whether you are more inclined to curb your wages through mutual funds or ETFs, or indirectly invest in water, the California drought can be used as a springboard for reexamining and rebalancing your portfolio and exposure to these important sectors.
Lightspeed Financial Services Group LLC is not affiliated with these third-party market commentators/educators or service providers. Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lightspeed Financial Services Group LLC does not endorse, offer nor recommend any of the services or commentary provided by any of the market commentators/educators or service providers and any information used to execute any trading strategies are solely based on the independent analysis of the user.
Copyright © 2001-2021, Lightspeed, LLC. All Rights Reserved.