Water Woes

04/16/2015 9:00 am EST

Focus: STOCKS

Nick Hodge

Founder and President, Outsider Club

The snowpack in the western US is at just 8% of its historical average, which is extremely troubling considering it typically provides 30% of California’s water in the summer and fall as it melts, explains Nick Hodge, editor of Like Minded People.

That means reservoirs in the state—which are already in danger of running dry as California’s suffers one of its worst droughts on record—will be in even worse shape this year.

It’s an anecdote that serves as a microcosm of the world’s water problems. And, of course, as has been our thesis all along...the companies that solve those problems will be the opportunities of this crisis.

We’re using the Guggenheim S&P Global Water ETF (CGW) as a way to hold the best-in-breed of those companies to capitalize on the opportunity.

As to individual stocks in this sector, we've established a position in Lindsay Corp. (LNN), a maker of specialty irrigation equipment. Grain prices fell off a cliff in April, taking many agriculture-related investments with them.

This business is cyclical. And when farmers aren’t getting high dollar for crops, they aren’t reinvesting back into their land. This cycle will reverse when grain prices rise.

Low grain prices have translated to Lindsay’s earnings; in its recently reported Q2 earnings, Lindsay's net income was down about a third year over year and revenue was down 7.7%. Still, we’re not ready to bail. Investment in agricultural irrigation is badly needed.

Meanwhile, Lindsay closed on an acquisition of Elecsys Corporation, a maker of machine-to-machine (M2M) technology, which has already established a reputation as a supplier to the agriculture, energy, water, and transportation markets.

This gives Lindsay a competitive edge when the cycle returns and also puts it in the business of agricultural data, which will be fast-growing going forward.

Lindsay is also expected to significantly grow its dividend as sales improve. We continue to recommend buying shares of Lindsay Corp. below $80.00.

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