Saturday, March 27, 2010

BAGAKOAA March 27, 2010 Water Water everywhere. . . NOT!


March 27, 2010 Water Water everywhere. . . NOT!

If you have been reading the Salve Lucrum blog, you know I enjoy Baron’s Magazine. On most Saturday mornings regardless of how hung over I might be, I will anxiously wait for that little white pick up truck to come down our street and heave the Weekend Edition of WSJ and the weekly Baron’s into our drive. Sometimes I feel like Steve Martin in The Jerk, when he runs around yelling, “The new phonebook is here! The new phonebook is here!” When I am sure none of the neighbors are watching I run up the drive way yelling, “This week Baron’s is here. This weeks Baron’s is here!” Well maybe not but I do look forward to it. This week’s was a cool issue with some great articles. I strongly encourage you to pick up a copy.

Now typically I don’t run out and buy stock in every stock they pimp, but in December they did a story about the weekly feature stock, when positive had a positive improvement in price over the following 18 months. This week they did a fabulous story about IT&T. It would be difficult to bring you up to speed on this equity without some plagiarism, because they covered so much and hit all the important stuff. Trust me the financials look very healthy and they have a price to earnings of just under 13. There are a lot of very positive forward looking statement from management in the article.

The crux of the article besides, explaining how healthy the company, (BTW they do explain how good their free cash flow is how they are paying down debt and supporting their dividend program, which all enhances shareholder yield), described how they are selectively moving away from traditional military contracts and moving more towards commercial enterprises. Now, that in and of itself is not enough to get me excited even with the sexy fundies, but they go on to explain how they are in the catbird seat for fresh clean water infrastructure income in various projects all over the world. To add to that they should be one of the key beneficiaries of the 15 Billion dollar government mandated (EPA) clean water infrastructure of about 70 cities in the US.

There is also a bill in Congress to provide $10 billion, (chump change to this administration and congress) in low cost loans to municipalities for clean water projects. With all of this potential and all of ITT’s cash, they would be prudent to do some shopping for acquistional companies in the field. Here is how I am going to play this one. First I am going to visit Edgar on line and read the last 10K and 10Q and confirm the Baron’s stuff. I trust them but I learn a lot by confirming how they draw their conclusions. Then I’ll go long on ITT at 50ish and look for some June-August in the money calls. Then I will look at the 30 or so stocks in the water infrastructure industry that look prime for the picking. I do this by going back and looking at the SEC filings for Nova Analytics from 2009. I will do this because it will shed some light on what IT&T is looking for as they spent 390 million dollars for Nova Analytics last year.

Here are a few I will be looking at:

Badger Meter, Inc. engages in manufacturing and marketing flow measurement and control products for water utilities, municipalities, and industrial customers worldwide. Calgon Carbon Corporation provides services, products, and solutions for purifying water, air, food, beverage, and industrial process streams in the United States and internationally. CLARCOR Inc. provides filtration products and services to customers worldwide. It operates in three segments, including Engine/Mobile Filtration, Industrial/Environmental Filtration, and Packaging. CUNO is a world leader in the design, manufacture, and marketing of a comprehensive line of filtration products for the separation, clarification, and purification of fluids and gasses. Its proprietary products include uses in the healthcare, industrial, and drinking water markets. The Professional Instrumentation segment of Danaher Corporation offers analytical instruments and related consumables that detect and measure chemical, physical, and microbiological parameters in drinking water, wastewater, groundwater, ocean bodies, and ultrapure water; ultraviolet disinfection systems; and chemical treatment solutions and analytical services to address corrosion, scaling, and biological growth problems in boiler, cooling water, and industrial waste water applications. Dionex Corporation designs, manufactures, markets, and services analytical instrumentation and related accessories, and chemicals. Flowserve (Which I owned in September 09 for about 3 weeks, $82-$93 a share) Corporation develops, manufactures, and sells precision-engineered flow control equipment, as well as provides a range of aftermarket equipment services. Insituform Technologies, Inc., through its subsidiaries, provides proprietary technologies and services for rehabilitating sewer, water, energy, and mining piping systems and the corrosion protection of industrial pipelines in North America and internationally. Itron, Inc. provides products and services for the energy and water markets worldwide. Layne Christensen Company and its subsidiaries provide drilling and construction services and related products to the water infrastructure and mineral exploration markets. Millipore Corporation, (which was in the portfolio in Sep 09 $72-$80, now at 105) a life science company, provides technologies, tools, and services for life science research, drug discovery, process development, drug manufacturing, and quality assurance in the Americas, Europe, and the Asia Pacific. Mueller Water Products, Inc. manufactures and markets a range of water infrastructure, flow control, and piping component system products for use in water distribution networks and water treatment facilities in the United States and Canada. Nalco Holding Company engages in the manufacture and sale of specialized service chemical programs worldwide. It includes production and services related to the sale and application of chemicals and technology used in water treatment, pollution control, energy conservation, oil production and refining, steelmaking, papermaking, mining, and other industrial processes. Pure Cycle Corporation engages in the design, construction, operation, and maintenance of water and wastewater systems in Colorado. PICO Holdings, Inc., together with its subsidiaries, engages in the ownership and development of water resources and water storage operations in the southwestern United States. Pall Corporation manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. Pentair, Inc. operates as a diversified industrial manufacturing company worldwide. The company's Water segment offers products and systems that are used in the movement, storage, treatment, and enjoyment of water. Roper Industries, Inc. engages in designing, manufacturing, and distributing energy systems and controls, scientific and industrial imaging products and software, industrial technology products, and radio frequency products and services. Companhia de Saneamento Basico do Estado de Sao Paulo provides basic and environmental sanitation services in the Greater Sao Paulo metropolitan area, Brazil. Servotronics, Inc., together with its subsidiaries, engages in designing, manufacturing, and marketing of servo-control components, which convert an electrical current into a mechanical force or movement and other related products. It offers torque motors, electromagnetic actuators, hydraulic valves, and pneumatic valves primarily to the commercial aerospace, missile, aircraft, and government related industries, as well as to medical and industrial markets. Tetra Tech, Inc. provides consulting, engineering, program management, construction, and technical services for resource management, infrastructure, and environment in the United States and internationally. Veolia Environnement S.A., together with its subsidiaries, provides environmental management services to public authorities, individuals, and industrial and commercial customers worldwide. Aqua America, Inc., through its subsidiaries, operates regulated utilities that provide water or wastewater services in the United States. Watts Water Technologies, Inc. designs, manufactures, and sells water safety and flow control products primarily for the water quality, water conservation, water safety, and water flow control markets in North America, Europe, and China.

Now all I have do is check them out and figure out who looks good, who looks bad, and more importantly who looks like a bargain for someone with a big checkbook. Get back to you soon.

Before closing, there were many good articles in this weeks Baron’s besides this one about IT&T. Be sure to check out the Thomas Donlan article on the health care bill and take two aspirin and call me in the morning.

Salve Lucrum


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