pppFund

Focusing on Regulated Utilities: Water stocks

Long
NYSE:SBS   Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp
This past week I have become interested in Utilities, more specifically, Water stocks. If you’re asking why or how would you invest in water then keep reading. If you’re wondering why would you invest in water, then let me explain. There is an increasing demand for water for various purposes such as personal, commercial and industrial use. Water is used to generate power in the majority of global power-generating entities and it is used extensively in agriculture. Freshwater supply is increasingly declining and the world population is increasing. There is no doubt that there is an investment opportunity here.

The water issues of Flint, Michigan may no longer be present in the News cycles, but I assure you they still haven’t solved the city’s water problem. Americans, among other countries with scares water supply need to wake up and realize that there is going to be significant scarcity in the coming decades. Sticking to the US alone, recent water quality reports have indicated that about half of US streams, akes and one-third of bays are polluted. Every year there is about 4 trillion Litters of untreated sewage, industrial waste and groundwater are introduced to US waters . The “quick shower” that we’ve become accustomed to every morning uses more water than a person would use in the whole day in a developing country. Get the picture? There is increasing demand, decreasing supply.

Water stocks are well liked by those who enjoy a safe and slow growth in addition to getting a healthy dividend. These stocks may not be as exciting as your Tech stocks, but they do provide stability. This stability is notably seen in earnings , cash flow, and their revenues. Furthermore, most utilities are highly regulated meaning that regulatory bodies set prices in such a way that companies can gain a reasonable amount of profit. This means that these companies are able to pass on their costs to the customers. With this notion in mind, they are almost guaranteed to be profitable.

I spent the last week digging around for various Water providers that could potentially provide a great investment opportunity. I think I have come up with a few great plays that could prove to be exceptionally profitable going forward to 2019.

We begin this segment with Companhia De Saneamento Basico Do Estado De Sao Paulo or Companhia De Saneamento ( SBS ). Companhia De Saneamento ( SBS ) is a Brazilian water and waste management company. In fact, they are one of the largest waste management companies in the world and Sao Paulo is their majority stakeholder. Companhia De Saneamento ( SBS ) provides residential, commercial and industrial services to consumers in Sao Paulo and other municipalities within the state. To put things in perspective, Sao Paulo has a population of more than 12million people.

SBS has seen a drop of more 50%from its all-time high of $16 and seen a 35%drop in the last 6 months. This drop in value could be attributed to various factors. One being that the Brazillian economy has been significantly volatile in the past year secondary to the election concerns and various other political issues. On top of the previously mentioned, SBS also has accumulated a considerable amount of debt.

Recently, SBS announced that they have made a deal with the authorities which render them free of paying a significant amount of their debt in return for services for 40 years. Now, the terms of this deal are exceptionally hard to understand as the news report contains a lot of lawyer-talk. However, this is great news for SBS since one of the major concerns has been debt for the company.
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