American Water Works Co. Inc. (AWK)

Utilities have been fantastic. You get that bond proxy. Rates have been okay. Among that group, water has been great. He likes the water and utility themes. He would have preferred an ETF rather than one stock in the space. The catch here is valuation. It is an 8-9% grower at a 20+ times earnings. H does not see a huge risk unless rates go through the roof.

This company purchases the water infrastructure of cities in the US, upgraded, fixes it, and then basically sells the services back to the city. A very interesting business model, in that Donald Trump is going to want to rebuild the inner cities in the US. He likes the concept, but this is way too expensive for him. The dividend yield is not high enough and it is expensive.

Seasonally, water stocks tend to do well in the summer. This one has had a phenomenal run for the last year, all the way from $50 to about $84 recently, and is now starting to pull back. It had become overbought. Investors are taking profits, and rotating into other areas. He would stay away.

Trading at 22X PE for this year, and 24.7X PE for next year. That is far too high. The target price is $71.54 a year from now. This is a regulated business, and that is tough.

This company buys the water pipes from US municipalities. It fixes the pipes and they get a fee for moving the water for the communities. A very, very stable business. The problem is, they have very little growth and they have no pricing power. PE is 30X and the yield is less than 2%, so he can’t get his head around the valuation.

One of the largest dominated water infrastructure businesses in North America, in both clean and waste water. They continue to win contracts with municipal regions. Have gone through a refinancing, which has allowed them to free up cash flow allowing them to raise their dividend. Solid management. Phenomenal track record of generating stable dividend growth. At these levels he wouldn’t be adding to holdings.

Good company and well-run. Stock has done very well the last 6 months or so. Returns will be like a utility. With the recent run-up, the stock has moved more to growth stock territory multiples at 17.5X earnings. Yield is a little over 2.5%.