Profitable water development stocks to receive boon from Obama


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By Mary-Lynn Cesar for Kapitall.

President Obama signed a $12.3 billion water resources bill on Tuesday, giving the green light to various water projects nationwide. The bill, formally called the  Water Resources Reform and Development Act , authorizes thirty-four US Army Corps of Engineers projects over the next decade, from levee repair in Louisiana to dredging in Boston Harbor. It's also the first water resources bill to be signed into law in fourteen years. 

In addition to representing a rare moment of bipartisanship-the main negotiators were Senators Barbara Boxer (D-CA) and David Vitter (R-LA)-the bill highlights the necessity and costliness of water infrastructure projects.  The Times-Picayune reports that Louisiana's Morganza to the Gulf project, which received authorization under the act, soared from an initial price tag of $887 million in 2007 to $10.3 billion this year. 

However, while Obama's signature gets the project ball rolling, it's up to the appropriations committees to determine which ones will actually receive federal funding. Several of the projects authorized by the bill seek to deepen ports so they can accommodate the deeper ships that will pass through the Panama Canal, which is is in the middle of an expansion. Others focus on coastal restoration in the Gulf and flood control measures in the Midwest. 

The size of the water resources bill combined with the nearly $8 billion  already allocated to water-related improvements by Congress means that a lot of money will likely be spent on water infrastructure over the coming years. So we decided to take a closer look at the water companies that may be involved with these projects, specifically focusing on profitable water stocks. 

We began with a universe comprised of water stocks belonging to the AllianzGi Global Water FundCalvert Global Water Fund , and  S&P Global Water Index . Next, we screened for stocks with  encouraging profitability as indicated by DuPont analysis . This formula uses a company's most recent quarter (MRQ) profit margin, total asset turnover, and financial leverage to analyze its return on equity (ROE). ROE is an important metric to investors because it shows how much profit a company has generated with the money it has received from its shareholders.

If DuPont analysis reveals that a company's profitability stems from an  increase in net profit margin and/or asset turnover , the source of growth is considered positive. But if profitability comes from an increase in leverage ratio, that's a negative.

We were left with three stocks on our list. Do you think these profitable water stocks will see continued increases in net profit margin and/or asset turnover thanks to this bill? Use this list as a starting point for your own analysis.

Click on the interactive chart to view data over time. 

1. AO Smith Corp. ( AOS , Earnings , Analysts , Financials ): Engages in the manufacture and sale of water heating equipment to the residential and commercial markets in the United States and internationally. Market cap at $4.60B, most recent closing price at $50.79.

MRQ net profit margin at 8.46% vs. 7.65% y/y. MRQ sales/assets at 0.232 vs. 0.225 y/y. MRQ assets/equity at 1.773 vs. 1.835 y/y.

2. Badger Meter Inc. ( BMI , Earnings , Analysts , Financials ): Engages in manufacturing and marketing liquid flow measurement and control technology products worldwide. Market cap at $742.94M, most recent closing price at $51.45.

MRQ net profit margin at 5.55% vs. 4.05% y/y. MRQ sales/assets at 0.258 vs. 0.25 y/y. MRQ assets/equity at 1.62 vs. 1.662 y/y.

3. IDEX Corporation ( IEX , Earnings , Analysts , Financials ): Engages in the manufacture and sale of an array of pumps, flow meters, other fluidics systems and components, and engineered products worldwide. Market cap at $6.40B, most recent closing price at $79.35.

MRQ net profit margin at 13.7% vs. 12.4% y/y. MRQ sales/assets at 0.184 vs. 0.175 y/y. MRQ assets/equity at 1.821 vs. 1.905 y/y.

(List compiled by Mary-Lynn Cesar. DuPont data sourced from Google Finance. Monthly return data sourced from Zacks Investment Research. All other data sourced from Finviz.)

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks

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