Trend: Flood and drought are a problem in the United States and elsewhere, emphasizing the reality that water is not evenly distributed. Opportunities for re-distributing water loom.
Jim Jubak at MSN Money says Pentair is a great water play, selling at a bargain price-to-sales ratio. Excerpts below.
Pentair (PNR): This fallen Wall Street favorite sells at a bargain price-to-sales ratio of just 1.05. About 70% of Pentair's sales come from water: pumps, control valves, storage tanks, filtration systems, and pool and spa accessories. With demand for clean water growing around the world, Pentair was among a small group of water pure plays that Wall Street loved. The price-to-sales ratio climbed to 1.94 and the price-to-book value ratio to 3.04. Then came the housing slump, and sales of Pentair's pool and spa equipment tumbled, falling 9% in the third quarter.
But only 15% of the company's sales are exposed to the U.S. housing market. And the rest of the long-term-growth story at Pentair is not only intact -- it's been getting stronger. The company has acquired a German maker of wastewater pumps, added a joint venture in China to produce water-filtration products and cut costs by moving some manufacturing to Mexico, China and Poland. Profit margins in the company's water business hit bottom at 10% in 2006 and look to rebound to 12% this year and to 15% in 2008. As of Nov. 2, I'm adding these shares to Jubak's Picks with a target price of $42 a share by October 2008.