Category Archives: Aqua America

AquaAmerica Has Prevailed…So Far

Posted on December 5, 2010 by | Leave a comment
On November 29, 2009, in an article titled "What About Utilities?", we submitted our thoughts about the merits of buying the electric utility Consolidated Edison (ED). Our response was that, in terms of a company in the exact same industry group, Southern Company (SO) was probably the best peer to choose from. In addition, we indicated that, although not in the exact same industry group, AquaAmerica, Inc. (WTR) was a far superior alternative to Consolidated Edison (ED).
Below is a chart of the performance of all three stocks from November 30, 2009 to December 3, 2010. It should be noted that the chart only reflects the change in price and not the dividends paid.
As you can see, AquaAmerica, Inc. (WTR) came out on top by generating a return of 32.23% in the last year. Second in the ranking was Southern Company (SO) which returned 18.79%. Finally, Consolidated Edison (ED) returned 14.24%. If viewed strictly on a price appreciation basis, AquaAmerica exceeded the return of Consolidated Edison by more than double.
When analyzed from the more relevant basis of total return (dividend plus price appreciation), the performance was as follows:
  • WTR-36.50%
  • SO-25%
  • ED-20.32%
We invite the curious to re-read the piece we wrote (located here) at the time to gain the “insight” that we were trying to convey. That “insight” is to always seek the best alternative. To the New Low team, the best alternative is the stock nearest the low that has the most viable upside prospects. Those that wish to suggest that “…no long-term holder of stocks would care about the one-year performance of a utility...” are correct. However, what we are trying to demonstrate is the value of assessing the proper time to buy.
Although we outlined our rationale for selecting AquaAmerica over Consolidated Edison, we’re more than willing to submit to the idea that we’re just lucky. As my economics professor used to say, “It is better to be lucky than smart.”

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Posted in Aqua America, Consolidated Edison, ED, SO, Southern Company, WTR

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Sell Aqua America (WTR) at the Market

Posted on July 11, 2010 by | 1 comment
Is it possible that your ship can come not once but twice?  We think so.  This is a situation where shareholders of AquaAmerica (WTR) get to understand exactly what Geraldine Weiss, author of Dividend's Don't Lie, means when she says that a stock trades in its own value range. 
In our research recommendation (found here) of WTR, it just so happened that we managed to pick the proverial bottom in the stock's price.  The stock has not fallen below the level indicated in the last year.  However, in our haste to obtain 10% profits, we sold our position in the stock on our sell recommendation of December 15, 2009.  On an annualized basis, we landed a 79.35% gain on our invested capital in 46 days.  Just a note about our view on investing, we want 10% returns in the shortest time possible with the fallback provision being the compounding of dividends if we happen to be wrong in our timing.
In the chart above, you can see our own buy and sell points along with the two most opportune times to exit WTR after our sell recommendation.  With WTR reaching a new high in the stock price and  exhibiting signs of topping out on a technical basis, it may be worth selling this stock.  If you had bought based on our research your total return so far (including dividends) would be 22.77% or an annualized gain of 33.44%. 
We know for a fact that better alternatives exist in the world of Dividend Achievers based on our Watch List and strongly recommend that you capture the sizable gains that have been made thus far.  An opportunity to cash out now is the equivalent of your ship coming in for the second time since May.

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Posted in Aqua America, Sell Recommendations, WTR

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Sell AquaAmerica (WTR) at the Market

Posted on December 15, 2009 by | Leave a comment
It is now time to recommend that AquaAmerica (WTR) be sold at the market. The stock has performed moderately since the research recommendation was issued on October 31, 2009. It is highly recommended that anyone who bought the stock based on my research should re-read the posting. Unfortunately, it was not possible to buy this stock at any price lower than the recommended date.

WTR's stock price has gone nothing but up since the recommendation. However, in the pursuit of "seeking fair profits" the returns that this stock has provided within the last 46 days say that it is necessary to consider alternative opportunities.

WTR was recommended when it was trading at $15.64. As of December 15, 2009, WTR was quoted at $17.28. This equals a return of 10%. Selling this stock now generates a return of 2x greater than the amount of the dividend yield. Additionally, the 10% gain exceeds the return on a 30-year treasury purchased on October 30, 2009 by 2.35x (if held to maturity.)

Those not interested in following through with my sell recommendation can feel comfortable knowing that WTR is a great long-term holding with a 10% cushion since our research recommendation of October 31, 2009.

As I have indicated in the purposes and function of this site, the goal is to:

  • maximize the annual yield of each trade.
  • reduce time between buying and selling of each stock.
  • exceed the annual yield of government guaranteed alternatives in each trade.

Research recommendations and investment observations are intended to be a starting point for investigating a quality company at a reasonable price. It is hoped that after doing the background research you can buy the stock at a lower price. Ideally the stock should be held in a tax deferred account and should not consist of less than 20% of your holdings. Personally, I prefer holding only 2-3 stocks at a time.

Sell recommendations are intended to deal with the short term reality of the market. The tracking of the Sell recommendations are the worst case scenario if you happen to have bought a stock at the time the research recommendation was made (please avoid making this mistake.) I aim for mediocrity in my returns, therefore I am happy with 9-12% annual gains. However, since codifying my approach to investing in 2005, I have had annual returns of 20% and above every year since.

It is always recommended that when selling a stock, one should not place stop orders, limit orders or orders after hours. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, I would rather leave some money on the table rather than have it taken away from me by the trades that are placed by institutions and market makers. Touc.

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Posted in Aqua America, Sell Recommendations, touc, WTR

Investment Observation: Aqua America (WTR)

Posted on October 31, 2009 by | Comments Off on Investment Observation: Aqua America (WTR)
Today's investment observation is AquaAmerica (WTR). According to Yahoo!Finance's water utilities review, WTR is ranked as the second largest water utility based on market capitalization.The most important point about this investment observation is that WTR has fallen to a brand new low during market hours on Friday October 30th. This low may soon match the 2-year low of around $14.50 set in mid-October 2008. This is fascinating because the actual lowest point after the market peak of 2006 at $30 is no longer on our last 52-week radar. However, we will watch to see if the ultimate low of $14.50 is reached.According to Value Line Investment Survey, WTR normally trades around 1.6 times the per share dividend divided by the "interest rate" (1.6x $0.51/interest rate). Valueline doesn't tell us by which interest rate we should apply to the company, so I have decided to apply the 30, 20, and 10 year U.S. Treasury rate. The following are the mean prices that WTR would trade at for each interest rate:

  • 30 year rate- $19.29
  • 20 year rate- $19.47
  • 10 year rate- $23.93

Based on the 30 year rate, WTR is selling 19.91% below the historical mean value. I chose the $19.29 value since it was the most conservative figure.

However, according to Investment Quality Trends, WTR is considered undervalued when it is selling for $12.27 or less. This indicates that WTR is not currently undervalued but could easily get to the $12.50 range if market conditions continue on the downside. Additionally, WTR has a large debt low and a high dividend payout ratio of 74%. This means that the stock could only "afford" a decline in earnings of 25% before the company has to borrow or issue more share to service the dividend.

According to Dow Theory, the following are the most important downside targets to watch for:

  • $14
  • $11.25 (fair value)
  • $9
  • $6.50

These targets are supposed to act as support levels. Support levels are points which the stock falls to but should not go below. If the stock goes below one support level then we should expect the stock to decline to the next target level.

One support level that is significant is the $15 level. This happens to be the most obvious level that the stock needs to hold above. Falling below $15 could indicate the negative nature of the markets.

Although this is a water utility and water is critical to life, investors need to understand that companies in this industry aren't a "sure thing." The biggest reason for this is that when, and if, water becomes scarce, government regulators will step in to take over (nationalize) what should otherwise be sold at the most profitable price (thereby curbing wasteful consumption.) There is literally an upside cap on profitability to a company like this due to the critical importance of the resource being sold.

Take your time to consider this Dividend Achiever for the good and the bad attributes. Your careful analysis of this company might compel you to purchase the stock. It is my hope that the stock falls further before your next acquisition. Touc.

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