Dump Oil Stocks: Don’t Risk Your Future
June 05, 2008 – by Richard Band
With gas prices constantly making front-page news, volatility in oil stocks is at an all-time high. To me, that spells unnecessary risk. When it comes to investing your money, I believe that safe profits should come first. My Profitable Investing subscribers know that I’m always on the lookout for companies which are set up to bring in reliable long-term profit setting volatility aside. Why take the risk of investing in an oil stock set for a wild ride when you can instead invest money towards a more reliable natural resource stock that will literally allow profit to flow in with ease? I’ve got one such stock in mind that I’d love to share with you. Read on to learn more.
Keeping Your Eye on the Future
While wars over oil control, supply and demand rage on, there’s one alternative energy play that continues to remain plentiful. In fact, this natural resource covers nothing less than five-sevenths of the Earth’s surface, so there’s very little chance we’ll face a worldwide shortage anytime soon.
So what exactly is this reliable natural resource has already brought my subscribers a reliable profit? Water. It’s true; money can be made from something as simple as H20. The trick is simply turning this stable resource into a stable flow of profits. That’s where I come in.
With hundreds of thousands of humans finding themselves crowded into relatively small areas, governments and private enterprises are constantly working to improve water supply problems. When it comes down to it, it’s often a major engineering challenge to bring water from its source to where people live.
I find myself discovering new companies sprouting up daily that are willing to tackle this supply and demand problem. This is where the opportunity for profit-taking springs up. For investors with a long-range view, this lull in the action is presenting a wonderful opportunity to invest money in a “renewable” industry whose profits will most likely never run dry.
Turn On the Faucet
The most tempting water play I see right now is American Water Works (AWK). Founded in 1886, AWK is the nation’s largest investor-owned water and wastewater utility, serving 15.6 million people in 32 states and the Canadian province of Ontario. My Profitable Investing subscribers are already beginning to enjoy over 4% of safe and reliable profits since I first recommended AWK to them in the June issue.
For decades, AWK was a first-class stock market performer. Then, in 2003…the giant German utility complex RWE swallowed the Works for the princely sum of $4.6 billion (plus assumed debt).
It was a classic case of an enthusiastic foreign buyer paying way too much for a supposed “crown jewel.” RWE never made a satisfactory return on its money. In fact, less than three years after buying the Works, RWE decided to get rid of it. Talk about buyer’s remorse!
It took a while, but RWE finally floated a public offering in late April for 40% of its stake in American Water. At the offering price, the entire company is now valued at $3.4 billion–a $1.2 billion bath for RWE, and an even bigger loss if you take into account the dollar’s slide against the euro over the past five years.
Tough break. For smart investors, though, it has offered a perfect opportunity. American Water continues to be a well-run business, with ample scope to grow organically (more mouths drinking water every year) as well as via acquisition. I’m particularly intrigued with the prospects for industry consolidation since more than half the 53,000 community water systems in the United States serve a population of 500 or less.
At this early stage of its (second) public life, AWK is doling out a quarterly dividend of 20 cents per share for a current yield of about 3.7%. For my Profitable Investing subscribers I look for stocks that will provide regular annual increases at a rate that should easily exceed the cost of living. Hence, the stock fits the income-and-growth profile that many retirees and other conservative investors are looking for. As my subscribers are typically retirees looking to spend their golden years worry-free, I find reliable stocks like AWK are a match made in heaven.
Water, Water (Profits) Everywhere!
Are you really excited about water? If so, you might invest in the exchange-traded fund that covers the whole sweep of the industry that I’m recommending to Profitable Investing subscribers. In addition to water and wastewater utilities, this ETF includes pump, valve, tank, meter and filter manufacturers, as well as companies that build and install irrigation systems. Both domestic and foreign stocks are represented–an important feature of any well-rounded water portfolio nowadays, since so much of the industry’s growth is taking place overseas in emerging markets. Last year, when many funds faltered, this stellar ETF returned 16.7% at market price. In 2006, the fund racked up an even better 22.2% return. Not bad for an industry based on the commonest raw material in the world. You might even call it pretty slick.
If you are ready to start profiting from this and other reliable investments, sign up today for your risk-free trial subscription to my Profitable Investing service! My recommendations for conservative investors have grown 900% since 1984! Don’t miss out! Get started today!