Trends I'm Watching

Renewable Energy Stimulus Takes Shape

Trend: U. S. green companies will likely benefit greatly from the renewal energy tax credits in the renewable energy stimulus.

Nick Hodge at Wealth Daily says a few sectors have been declared early winners now that the $787 billion stimulus has been signed into law. Excerpts below.

Link: Renewable Energy Stimulus.

$104 billion is slated to come green's way... a full 13% of the stimulus package.

Here is where some of that money is going:

• $4.5 billion to boost the energy efficiency of federal buildings

• $6.3 billion for energy efficiency and conservation grants

• $5 billion to weatherize old buildings

• $2.5 billion for energy efficiency and renewable-energy research

• $6 billion for new loan guarantees for wind and solar

• $6 billion for cleaning up toxins on former military sites

• $1.2 billion to fund the Environmental Protection Agency's environmental cleanup programs

The cleantech industry is about to enjoy a more equal share of the subsidies that have been afforded the oil and coal industries for years.

Leveraging the Stimulus for Profit

The two parts of this bill that will do the most to aid the cleantech industry are the extension of the production tax credit (PTC) and the newly created ability to claim an investment tax credit (ITC) or grant in lieu of the PTC.

The Best Water Stocks

Trend: There's no doubt that clean water will be in high demand in the future. However, finding the best investments to leverage this trend has been difficult.

The water ETF PHO has not delivered upon its promise at this point.

Jeffrey McLarty wanted to find stocks that will benefit over the next 50 years as we run out of fresh water. He researched the stocks that are the heaviest components of PHO. Below are excerpts from this excellent in-depth analysis – click on the link below for detailed info.

Link: Diving Into the Water ETF - Seeking Alpha.

The list of the heaviest components of PHO ...are: AECOM Technology Corp. (ACM), Valmont Industries Inc. (VMI), Tetra Tech Inc. (TTEK), Lindsay Corp. (LNN), URS Corp. (URS), Veolia Environnement (VE), Danaher Corp. (DHR), Itron Inc. (ITRI), Ameron International Corp. (AMN), Siemans AG (SI), Emerson Electric Co. (EMR), General Electric Company (GE), IDEX Corp. (IEX), Pentair Inc. (PNR), Millipore Corp. (MIL), Roper Industries Inc. (ROP), ITT Corp. (ITT), Badger Meter Inc. (BMI), Layne Christensen Co. (LAYN), Nalco Holding Co. (NLC), Watts Water Technologies Inc. (WTS), Calgon Carbon Corp. (CCC), Franklin Electric Co. Inc. (FELE), Pall Corp. (PLL), Mueller Water Products Inc. (MWA), GormanRupp Co. (GRC), Insituform Technologies Inc. (INSU), Southwest Water Co. (SWWC), and Aqua America Inc. (WTR).

Conclusions & General Observations:

Not a single stock in PHO screamed ‘buy me now,’ but there were lots of different ideas.

The companies that are actually in the space, generally concur that there is a shortage of resources ahead, and it is going to drive growth.

I'm not sure investing in water infrastructure is a smart way to play the ’scarcity.' I’d rather just invest in the names purifying and filtering. If there was a company desalinating, I’d be all over that - but I didn’t see one here.

The metering market seems to be penetrated by two companies, it’s measured to be $6.5B in the U.S., and will likely create a boom followed by a bust in the market.

In my opinion, there are some stocks that don’t belong in PHO.

There are some poor performing companies, that might belong in PHO, but it is likely that a smart investor wouldn’t want to hold any position in them.

ITT And Insituform are both sponsoring different documentaries on raising ‘awareness’ of the world's water problems. They are both scheduled for spring/summer of 2008.

Access to Clean, Fresh Water

Trend: The supply of clean, fresh water is shrinking as the demand for that water is increasing.

The Oil Drum describes why the availability of clean, fresh water supply is threatened. Excerpts below.

Australia's recent bout of intense drought has had an impact on global agricultural production and subsequently on a number of global commodity prices - rice being the most recent example. The United States has also started to experience issues with water supplies in both the southeast and southwest.

Link: The Oil Drum | Solving Our Water Problems - Desalination Using Solar Thermal Power.

Access to fresh, clean water has increasingly become an issue worldwide in recent years, as a number of factors come into play affecting both supply and demand:

• Population is increasing - and most rapidly in drier regions
• People have become wealthier and accustomed to using more water
• Polluted water has become more common, as large swathes of the developing world industrialise
• Ever increasing demand for power (and newer forms of energy like biofuels or coal to liquids plants)
• Groundwater aquifers have been depleted by irrigation for agriculture
• The water industry is mostly made up of public utilities that have often been starved of new investment funds
• Climate change has impacted rain patterns, reducing rainfall levels and increasing the frequency and intensity of droughts
• Melting glaciers have reduced water flows
• Water has been cheap, so there is little incentive to conserve it

Investing in Water and Water ETFs

Trend: Four water ETFs provide provide alternatives for long term investments in water.

Brian Powers at Seeking Alpha focuses on water as a long term investment, meaning decades. Excerpts from his in-depth analysis of water ETFs are below. Click on the link below to read the entire article.

Link: Investing in Water and Water ETFs - Seeking Alpha.

When there is inadequate water present in an area, its people have only three options:

1. create infrastructure to bring in new water
2. find better technology and methods to treat, distribute and conserve the water they have
3. move

No matter which option is selected, in the US or abroad, there is no way to escape the high cost of water, our primary requirement for survival.

The research I have done has shown me that, in the US alone, the cost of all maintenance and repairs for freshwater and sanitation needs for the next twenty years is well over $1 trillion (despite what may actually be spent). On a global scale, the cost over the next twenty years is more than $5 trillion.

...in 2005, PowerShares launched the PowerShares Water Resources Portfolio ETF (PHO). This was the first concentrated fund investing in water related infrastructure, utilities and technology.

CGW, PIO and FIW are all fine ETFs. I actually like the global exposure in CGW and PIO despite the fact that I feel they are too concentrated at the top. Also, these three ETFs have existed for less than one year. CGW has assets of $315.65M, FIW of $10.49M and PIO of $241.09M.

The Water Shortage

Trend: The price tag for ensuring a reliable water supply could be $300 billion over 30 years — for just upgrading pipes to handle new supplies.

The Associated Press reports that much of U.S. could see a water shortage in the near future. Excerpts below.

Link: The Associated Press: Much of U.S. Could See a Water Shortage

An epic drought in Georgia threatens the water supply for millions. Florida doesn't have nearly enough water for its expected population boom. The Great Lakes are shrinking. Upstate New York's reservoirs have dropped to record lows. And in the West, the Sierra Nevada snowpack is melting faster each year.

Across America, the picture is critically clear — the nation's freshwater supplies can no longer quench its thirst.

The government projects that at least 36 states will face water shortages within five years because of a combination of rising temperatures, drought, population growth, urban sprawl, waste and excess.

"Is it a crisis? If we don't do some decent water planning, it could be," said Jack Hoffbuhr, executive director of the Denver-based American Water Works Association.

Water managers will need to take bold steps to keep taps flowing, including conservation, recycling, desalination and stricter controls on development.

"We've hit a remarkable moment," said Barry Nelson, a senior policy analyst with the Natural Resources Defense Council. "The last century was the century of water engineering. The next century is going to have to be the century of water efficiency."

The price tag for ensuring a reliable water supply could be staggering. Experts estimate that just upgrading pipes to handle new supplies could cost the nation $300 billion over 30 years.

"Unfortunately, there's just not going to be any more cheap water," said Randy Brown, Pompano Beach's utilities director.

It's not just America's problem — it's global.

Investing in Water

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.

Link: 3 cheap stocks for a pricey market - MSN Money.

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.

GE cleaner technology R&D Investment to Reach $1 Billion by Year End

Trend: Cleaner technology is gaining momentum as large companies see big opportunities in reducing pollution and improving energy efficiency.

Some excerpts from an October 23 press release by GE.

Link: GE ecomagination R&D Investment to Reach $1 Billion by Year End, Driving Expansion of Advanced Technology Pipeline : Press Releases : News : GE.

GE announced that it will invest more than $1 billion on cleaner technology research and development (R&D) for 2007, drawing closer to its pledge to invest $1.5 billion annually on ecomagination R&D by 2010. One of four GE ecomagination commitments originally made in 2005, R&D investment has reached a total of more than $2.5 billion since the program’s inception.

Today’s announcement was made by Lorraine Bolsinger while she was onsite at GE’s Global Research Center (GRC) in Niskayuna, NY to host a day-long briefing session on the innovative portfolio of ecomagination products, which are currently being developed at the facility.

Research and development funding for ecomagination is shared between GE’s four GRCs (Schenectady/Niskayuna, NY, Shanghai, Munich and Bangalore) and each of GE’s major businesses. The GRCs serve as dedicated labs for long-term R&D commitments and work to develop a broad technology portfolio to help meet a wide-range of energy and environmental challenges.

GE researchers are working on a broad array of technology initiatives that cut across GE’s business portfolio. These projects include:

• Renewable energy -- exploration of advanced concepts in wind, solar and biomass to improve the economics and availability of these clean, renewable energy sources
• Advanced gasification technologies -- for GE’s Integrated Gasification Combined Cycle (IGCC) System to increase plant efficiency, lower emissions and make these systems carbon capture ready
• Fuel efficiency -- research in composite materials, advanced aerodynamics, turbine alloys and advanced coatings and combustion systems to improve the fuel efficiency and overall performance of present and future generations of aircraft engines and electric power generation systems
• Hybrid systems -- research to support the development of the next generation hybrid locomotive
• Lighting -- several energy efficiency initiatives such as Organic Light Emitting Diodes (OLEDs) to reduce our energy consumption
• Water -- programs to provide more affordable, less energy-intensive solutions to water purification and re-use that enable an increase in the quantity and quality of clean water around the globe.

via Earth2Tech

Six market waves

Trends: Alternative energy, Mine Resistant Ambush Protected (MRAP) vehicles, clean water, biotech, 'Chindia' middle class, and jetliners could be fertile ground for investing in the near future.

Tobin Smith describes six major waves that ChangeWave Investing has identified for investers looking for market gains. Excerpts below.

Link: Tobin Smith Journal

1. Alternative energy wave

2. Mine Resistant Ambush Protected (MRAP) vehicles wave

3. Clean water wave

4. Biotech wave

5. 'Chindia' middle class wave

6. Jetliner wave

These markets don't come all the time. It's certainly here for the next two to three years, but beyond that I couldn't tell you.

We are guided by our ChangeWave Alliance research as we continue to expand our horizons -- meaning we're on the lookout for the niche companies and sectors in which we can double our money every two to three years.

I've got to be a stock market cheerleader because you're going to hear all sorts of bad news this summer about subprime loans. You know we're going to get a pullback, but it's that pullback that gives you the next great buying opportunity.

The way you make market-doubling and market-tripling returns every year is to be ahead of the crowd.  You've got to be in the right places at the right time at the right price.

New Global Water ETF

Trend: Another ETF for investing in water becomes available.

Link: New Global Water ETF Available - Seeking Alpha

... the Claymore S&P Global Water Index (CGW) ... includes both water utilities and infrastructure, and water equipment and materials companies. The ETF consists of 50 stocks in developed markets around the world, as research points to a global need for clean water.

Water Shortages Are Widespread

Trend: Global water shortages make investing in water products and services more attractive.

Alligator Investor recommends buying PowerShares Water Resources Portfolio (PHO). He has been seeing news reports that make him want to run out and buy more immediately. Below are some links that Alligator Investor provides to support his view.

Link: Buy PowerShares Water Resources Portfolio (PHO) « Alligator Investor

Water shortage in Gambia results in lack of functioning toilets.

Low water supply in China portends a rise in global grain costs.

Water shortage worsens in the Phillipines.

Critical water shortage in Pakistan forces people to drink polluted water.

Australian companies cash in on water shortage.

Water shortage in Florida forces agricultural users to reduce consumption 15%.

Petroleum refinery in Kenya shut down due to water shortage.

Water shortage in Dominican Republic leads to violent protests.

In Colorado, where they actually have water courts to resolve disputes over limited supplies, construction of new homes and commerical buildings has been halted in some areas due to lack of water.

Water shortage in South Africa threatens economic growth.

via ETF Investor

Disclosure: I own shares in PHO.