American Water Works: "Rock Solid"
06/10/2016 8:00 am EST
Unlike investors who fear the repercussions of rising rates, CEOs are taking steps to increase value when they eventually come to pass, asserts Keith Fitz-Gerald, editor of Total Wealth.
They’re making bets now — while rates are low — to ensure survival and profitability in anticipation of a time when the markets will make that seem like an impossibility.
This capital discipline can ultimately lead to far more stable performance and, most importantly, the best upside profit potential.
Take American Water Works Co. (AWK); the company continues to plot a path higher while putting up numbers that most other companies would love to have.
Quarterly revenue growth is 6.40% year-over-year while quarterly earnings growth is a healthy 2.50%. Admittedly, those don’t sound very sexy, but they’re not supposed to be.
American Water Works sells a product — water and water treatment— that you literally cannot live without to more than 15 million people in 47 states and into Ontario, Canada.
As such, it’s a rock-solid choice intended to shield you from the volatility leading up to and following the first rate hike when it hits.
The company continues to pick up customers and market share, especially as they relate to natural gas companies in the Appalachian Basin who need water and water-related services to produce. What’s more, it has the power to increase prices over time.
In addition, the company is working closely with the United States Military Services Group and takes over operations at California’s Vandenburg Air Force Base this month, bringing the total number of bases serviced to 12.
That’s potentially a very lucrative set of contracts at a time when spending is tight and getting tighter. But, again, you cannot live without water any more than you can run a military without water.
It’s worth noting that AWK is actively expanding into geothermal energy and desalination, both of which are potentially very high-margin activities. Neither may pay off immediately, but both are high-probability moves for the future.
All told, the company’s 41% return since I brought it to your attention in March 2015 represents a stunning outperformance over the Dow’s measly 1% return in the same time frame — and I have every reason to expect the dramatic outperformance to continue.
By Keith Fitz-Gerald, Editor of Total Wealth