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My Top Water Utility Stocks For 2015

Summary In this series of articles, I will be reviewing individual industry sectors and selecting my favorite stock picks for 2015. For Part 53, I will be reviewing the Textiles and Apparel sector, taking a look at revenue/earnings growth and the overall financial stability of the companies. Out of this group of stocks, my top picks are Artesian Resource, California Water Service, and SJW. Overview In this series of articles, I will be taking a look at various industry sectors and selecting what I believe will be outperforming stocks for 2015. In Part 1 , I reviewed 47 stocks within the Aerospace and Defense industry sector. For part 53 (the final part of this series), in determining my favorite stocks in this sector for 2015, I will review the following Water Utility stocks: American States Water (NYSE: AWR ) American Water Works (NYSE: AWK ) Aqua America (NYSE: WTR ) Artesian Resources (NASDAQ: ARTNA ) California Water Service Group (NYSE: CWT ) Connecticut Water Service (NASDAQ: CTWS ) Consolidated Water (NASDAQ: CWCO ) Middlesex Water (NASDAQ: MSEX ) SJW (NYSE: SJW ) York Water Company (NASDAQ: YORW ) Step 1 The first step I took to narrow down the list of possible options was to look at the earnings over the past five years of these stocks within the industry sector. I planned on removing any stocks from further review because of their negative earnings growth over the past five years; however, none of the stocks had negative earnings growth. Step 2 I then took the list of remaining stocks and checked the revenue growth of each over the past two years. I am removing any stocks that had flat revenue growth (less than 2%) or a decline in revenue over the past two years. These stocks include: American States Water Aqua America Consolidated Water Step 3 My next move was to examine the trailing PEG ratio of each of the remaining stocks. I removed any stock that had a PEG ratio over 1.5 to focus more specifically on fairly valued/undervalued stocks. These stocks included: Step 4 The next set of data I reviewed was the Fundamental and Value Scores for each of the ten remaining stocks. These scores are calculated by YCharts and I have found them to be very useful when researching investment options. More details on each of the scores can be found here and here . Fundamental Score Value Score American Water Works 5 9 Artesian Resource 8 10 California Water Service 8 10 Connecticut Water Service 8 7 SJW 9 9 York Water 8 9 To determine the best stocks for 2015, I’m only taking into consideration stocks that have values of 8 or higher for both fundamental and value scores. Doing this left me with the following remaining stocks: Artesian Resource California Water Service SJW York Water Step 5 My next step was to look at the book value of each company and to remove any stock that has seen a decrease in its book value over the past five years. However, none of the remaining stocks saw a decline in book value during this time period. Step 6 I then looked at the remaining stocks and only included stocks with earnings yields of 5% or higher in my final analysis. The only stock with a yield below this was York Water. Step 7 My next step was to look closer at each stock remaining that passed all previous criteria and determine whether or not there were any reasons to eliminate them as great stock candidates for 2015. In doing so, I reviewed the financials of each company, the most recent quarterly report transcripts, and searched for any news items that warranted concern. Artesian Resource For its last quarter , the company posted a 6% increase in revenue and an increase in earnings per share from $0.23 to $0.28 compared to the same period last year. Artesian continues to pay a high yielding (just over 4%) and slow growing (16% over the past five years) dividend and should continue to reward income investors moving forward. California Water Service For its last quarter , the company posted a 10% increase in revenue and an increase in earnings per share from a loss of $0.11 to a gain of $0.03 compared to the same period last year. The company was able to see these impressive results through a combination of rate increases, sales to new customers, and revenue decoupling mechanisms/balancing accounts. The company will be challenged by the current drought in California, but I believe that the rate case increase that was authorized will help the California Water continue to see impressive quarterly results moving forward. SJW For its last quarter , the company posted a 14% increase in revenue and an increase in earnings per share from $0.04 to $0.23 compared to the same period last year. SJW is facing the same drought issue as California Water, but rate increases and new customers have helped offset the lower customer water usage the company has seen. While the company is sure to see continued low usage rates, I feel that the company’s strong balance sheet and strategic investments will keep the company performing at a high level even during stressful times. Conclusion Out of this group of stocks, my top picks are Artesian Resource, California Water Service, and SJW. While both California Water and SJW are both dealing with a major drought, I believe that both companies have strong enough cash flow and balance sheets to continue to perform well during this time. Looking at the chart below, you can see that all three companies have performed similar so far this year, with all three of them currently down 3.99%-5.44%, while the S&P has been virtually flat. ARTNA data by YCharts When looking at long term returns, you can see that both Artesian and California Water have performed nearly identical with the market in general, while SJW has performed significantly better. ARTNA Total Return Price data by YCharts Currently, SJW is more attractively valued than both Artesian and California Water based on PE trailing ratios, while Artesian is the more attractively priced stock based on forward PE ratios and price to book value. This isn’t the only area in which all three stocks are similar. If you look at the chart below, you can see that both California Water and SJW have increase their book value more than Artesian over the past five years. ARTNA Book Value (Annual) data by YCharts But if you look at a more longer term view, you can see that Artesian has done a significantly better job of increasing book value over the long run. ARTNA Book Value (Annual) data by YCharts With all three stocks maintaining solid overall financial positions, all three stocks offering decent yields with growing dividends, and all three stocks showing fairly consistent and significant increases in revenue, I believe that these stocks are solid options for both short term and long term investors. As always, I suggest individual investors perform their own research before making any investment decisions. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Invest In America With These 4 ETFs

Now more than ever, it is a great time to invest in the United States. Foreign concerns are piling up around the world and a number of global economies appear to be teetering on the brink of more turmoil. Greece threatens to take the rest of Europe down with it in a debt spiral that could put extra focus on the rest of the eurozone peripheral economies in the process. China is also on the brink, as its latest steps seem unable to stave off a stock market slide in what had been one of the hottest corners of the globe to start the year. Meanwhile, here in the U.S., stocks are holding steady while we are seeing reasonably positive data on multiple fronts as well. Consumers remain confident, oil prices are moderate, construction spending is rising and unemployment remains a very small problem for many. As you can see by the preceding paragraphs, there is quite the difference between what is going on in the U.S. and what is happening in the rest of the major economies of the world. And this doesn’t even go into the peril that many emerging markets – or even commodity-focused nations – find themselves in right now. So if you are looking to make a targeted investment in the U.S., consider any of the four ETFs outlined below. These picks go across asset classes so there should be something for every investor who is looking to bet on the United States of America in a portfolio: First Trust RBA American Industrial Renaissance ETF (NASDAQ: AIRR ) If you are looking to bet on a resurgence in American industrial might and production, AIRR is a great choice. The fund focuses on small and mid cap stocks in the industrial and community banking sectors. The index starts with Russell 2500 index components and then eliminates all those that aren’t related to manufacturing or related infrastructure, as well as banking. Companies are then screened out which do more than one-quarter of their business beyond U.S. shores, or have a negative forward PE. For the banking component, only banks in traditional manufacturing hubs will be included in the holdings list. This approach looks to focus on small and midsized manufacturing companies that are selling to other U.S. firms or customers. And the banking component not only provides diversification, but acts as a secondary way to play a manufacturing boom as many small cap industrial companies will look here for their capital needs. PowerShares Build America Bond Portfolio ETF (NYSEARCA: BAB ) The Build America Bond program consists of taxable muni bonds which come with a 35% interest rate subsidy, paid to the issuer. This makes these taxable securities competitive on a cost and yield perspective for issuers and a solid choice for muni bond investors. And though the program ended as part of the American Recovery and Reinvestment Act, there are still plenty of these bonds outstanding, making them excellent ways to invest in America from a fixed income perspective. Investors should note that the duration is a bit high here coming in at just under 10 years, so interest rate risk is definitely something to consider. However, with the recent Greek issues, a rate hike could be postponed in the near term. And with a 30-day SEC Yield of about 4.2%, it definitely is an income destination. It has been a weak run for BAB as of late, but you can say that about many muni bond ETFs in the past few months, and especially those with more interest rate risk. However, if you are looking for a different type of muni bond ETF – and particularly one in the taxable market – BAB and the Build America Bond market will be tough to beat for betting on America in a fixed income portion of a portfolio. Teucrium Corn ETF (NYSEARCA: CORN ) The United States is the world’s biggest producer of corn by far, producing nearly as much as China, Brazil, and the entire EU bloc combined. And for exports, there is a similar story brewing with the U.S. easily leading the pack. This makes corn a great crop to invest in if you are looking to make a play on a U.S.-centric natural resource. Investors can play this commodity with the Teucrium Corn ETF which sees a decent amount of volume and AUM approaching $100 million. The fund doesn’t just invest in front month corn futures though, as it includes second to expire CBOT futures, third to expire futures, and then the December futures following the expiration month of the third to expire contact. Though the commodity is down against the S&P 500 through the first half of the year, it is slowly making a comeback and has gained about 13% in the past month. This big gain is due to a great crop report so be on the lookout for CORN later this summer as well. PowerShares DB USD Bull ETF (NYSEARCA: UUP ) Thanks to more global central bank easing and demand for safe havens, the U.S. dollar has been a strong performer as of late. And speculation that a rate hike could be coming at some point soon is certainly something that can’t be said for a number of other central banks out there which are moving in the other direction. You can easily bet on continued dollar strength with UUP though, as this ETF offers exposure that goes long in USDX futures against a variety of developed market currencies. The euro constitutes about 58% of the benchmark, 13% goes to yen, and then 11.9% is in British pounds and 9% in Canadian dollars. The fund is thus heavily dependent on the performance of the dollar against the euro but this has been a great trade for a while and could continue to be as long as the European debt crisis persists. Plus with a Zacks ETF Rank #2 (Buy), the longer term picture is looking bright for this ETF too. Original Post

3 Sectors To Watch In The Second Half Of 2015

Summary The tepid return in the major averages was generated by weakening in interest rate sensitive areas and continued strength in high growth leadership categories. Healthcare stocks were once considered a defensive area of the market, yet have transitioned to a more growth oriented phase. Conversely, utility stocks have been torched by rising interest rates that have eaten away at their returns. The S&P 500 Index was nearly unchanged in the first half of 2015, yet the divergences in underlying sectors told a very different tale. The tepid return in the major averages was generated by weakening in interest rate sensitive areas and continued strength in high-growth leadership categories. This tug-of-war style market has created a relative valuation chasm between several important sectors that warrants close attention. Leader: Healthcare Healthcare stocks were once considered a defensive area of the market similar to consumer staples and utilities because of their inelastic business models. After all, medical services and drug companies operate with little cyclical burden to their bottom line. Nevertheless, some believe that these stocks have transitioned to a more growth-oriented phase that has been driven by the biotech boom and continued advancements in the medical field. The Health Care Select Sector SDPR ETF (NYSEARCA: XLV ) has been a top performing area of the market over the last three- and five-year time frames and continues to lead as the No. 1 sector so far this year. There’s no doubt that this ETF has shown tremendous momentum and activity has been robust as XLV has gained 9.51% through June 30. While this area of the market has been one of the most resilient, I would be hesitant to chase performance and add near its recent highs. If XLV or a similar healthcare fund has been on your radar, I would be patient with respect to any future entry points and look to pick up shares on at least a modest dip. In addition, this sector should serve as a benchmark of momentum leadership. If we see XLV start to fall out of favor, it may signal that investors are looking to pair back on risk and potentially rotate into a more defensive stance. Healthcare stocks currently make up over 30% of the iShares MSCI USA Momentum Factor ETF (NYSEARCA: MTUM ), which screens its underlying holdings for recent performance characteristics. Laggard: Utilities On the flip side of the coin, utilities have been torched this year as a result of rising interest rates. Coming off a strong performance in 2014 where rising rates acted as a tailwind, the Utility Select Sector SPDR (NYSEARCA: XLU ) is down 10.70% through the first half of 2015. The price of XLU peaked at virtually the same time as interest rates bottomed and has been on a steady course lower ever since. For the moment, it appears that the fate of utility stocks is going to be closely tied to the price action of U.S. Treasury yields. This traditionally defensive sector has been eschewed for more growth-oriented positions in healthcare, consumer discretionary and technology stocks. From a relative value standpoint, I believe that utilities look attractive at these levels given the thesis that interest rates will remain stable or head lower over the next six months. The recent drop in price also has boosted the yield on XLU to a healthy 3.80%, which makes it the highest yielding sector in the S&P 500. Income investors should note that diversified dividend funds such as the iShares Select Dividend ETF (NYSEARCA: DVY ) and First Trust Morningstar Dividend Leaders Index Fund (NYSEARCA: FDL ) have outsized utility sector exposure. This asset allocation acted as a drag on returns in the first half of the year and should be noted as a key driver moving forward as well. Tweener: Financials Financial stocks have long been touted as the cure to beat rising interest rates, yet the Financial Select Sector SPDR (NYSEARCA: XLF ) has been mired in a sideways malaise since the beginning of the year. XLF posted a net return of -0.61% through the first six months of 2015 and has failed to show inspiring price action to back up its reputation. XLF is an interesting fund because of the wide designation of financial-centric companies. This ETF includes large banks, REITs, brokerages and even diversified holding companies such as Berkshire Hathaway Inc (NYSE: BRK.A ) (NYSE: BRK.B ). REITs are currently the third largest industry group within XLF at 14.20% and have dragged on returns since the beginning of the year. The iShares U.S. Real Estate ETF (NYSEARCA: IYR ) has experienced the same interest rate sensitive drag as utility stocks and is down 5.5% in 2015. Conversely, indexes that focus solely on banking stocks such as the SPDR S&P Bank ETF (NYSEARCA: KBE ) have gained 8.87% this year. Clearly these stocks are the true beneficiaries of the rising interest rate theme as it relates to a fundamental driver of industry returns. Ultimately, XLF appears to be experiencing its own internal tug-of-war based on this bifurcation between sub-sectors that has caused it to drift aimlessly for the last six months. The Bottom Line The information presented above can be applicable to both broad-based indices and individual sector investing. Investors that own diversified equity ETFs need to be cognizant of the underlying asset allocation and sector positioning as it relates to future risk and returns. Those who prefer to select more targeted ETFs may choose to shift their positions in order to take advantage of a specific theme or pair back on an overbought area of the market. Making small tactical changes of this nature can have a big impact on your performance and risk profile as we make our way into the second half of the year. I spoke in-depth about these topics and more in our recent mid-year teleseminar: Four Components Of A Successful Income Portfolio . Click here for the presentation . Disclosure: I am/we are long DVY. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: David Fabian, FMD Capital Management, and/or clients may hold positions in the ETFs and mutual funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell, or hold securities.