Investing in Water – Are Conditions Right?

Trend: Water usage continues even when the economy slows.

We've invested in the water ETF PHO several times in the past year, only to be disappointed when it hit our 10% stop loss and sold. Maybe the market sell off and the unique characteristics of water use will make investing in water profitable in these strange times.

Nick Hodge at Wealth Daily recommends a water company who is growing earnings.

Link: Investing in Water Companies.

Flowserve Corp. (NYSE: FLS), which actually reported earnings last night.

Here we have a stalwart water service company that develops, manufactures, and sells a variety of valves, pumps, and related equipment for the water and other industrial sectors.

Their release of third quarter earnings recently stunned the street.

Earnings per share came in at $2.04, much higher than the analyst-predicted $1.76, and 86% higher than earnings in the third quarter last year.

Flowserve traded as high as $145.00 earlier this year, but now trades in the $55.00 range.

And here's the kicker.

Flowserve currently trades at a price-to-earnings ratio of 8.55. That's the current share price divided by full year 2007 earnings.

Unlike other companies that have reported earnings in recent days, Flowserve actually stuck to its earnings forecast for 2008.

Most other companies have trimmed their outlooks in light of current economic conditions that are all but certain to reduce sales.

The company is still predicting that 2008 earnings will come in at the $7.50 mark.

That would give the company a forward price-to-earnings ratio of just 7.33, rendering it utterly oversold.

You see, consumers will tighten their belts to get through these tough times. Less going out to dinner. Less purchasing of discretionary items. Perhaps even driving less to curb fuel costs.

But they won't use less water.

And there are a lot of other companies out there that will benefit from this situation as Flowserve will.

Disclosure: We may own shares of Flowserve.