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
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
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
We began with a universe comprised of water stocks belonging to
AllianzGi Global Water Fund
Calvert Global Water Fund
S&P Global Water Index
. Next, we screened for stocks with
encouraging profitability as indicated by DuPont
. 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
increase in net profit margin and/or asset
, 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
1. AO Smith Corp.
): 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
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
2. Badger Meter Inc.
): 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
): 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
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
(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.)
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