Water: Unregulated, Unlimited

06/27/2003 12:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

"Recovery from the catastrophic two-year utility bear market continues," notes," says Roger Conrad, in The Utility Forecaster. " Regulatory decisions, the economy, and the sector credit crunch are dictating the pace of the comeback. But, they’re becoming much more favorable for the energy utility industry.  Also bullish is that 42 of 46 portfolio utilities met or beat Wall Street first-quarter earnings expectations." Here's Conrad's latest featured growth recommendation--a water utility.

"Never deregulated, always essential, water is the most reliable of businesses. Water companies have traditionally been very slow growing, but not Southwest Water (SWWC NASDAQ), which is a core holding in our model portfolio. Run by the Garnier family since its inception, Southwest owns a steady regulated water utility with operations in California and New Mexico. Its bread and butter, however, is the services unit, specializing in managing water utility systems for small cities. With more than two million customers in 31 states, it contributes nearly two thirds of sales and is growing rapidly.

"Southwest wins business by targeting small but fast growing communities off the radar screen of the industry’s big boys, building relationships with local officials over a period of months or even years. Once a contract is signed, the company runs the system for a fee, with the community covering major capital costs. When Suez lost its system management contract for Atlanta, Southwest too sold off as investors worried its business plan was in trouble. The company, however, has scarcely missed a beat, adding contracts that are expected to grow sales by 20% to 25% and operating income at least 30% in 2003. And by sticking to small towns, no one contract if lost is large enough to derail profits. The stock now trades at the low end of its 52-week range, indicating the market wants to see results before committing. That makes now an ideal time to buy solid Southwest up to 15."

Editor's Note: All of us at The Money Show Digest would like to congratulate Roger and his wife Sarah on the birth of their third child, Clifton Stuart. We wish the Conrad family all the best!

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