Thoughts on mixing wages, oil, water and stocks

A negative but dull Friday of trading action gives us an opportunity to explore some interesting trading opportunities in the months ahead.

Artesian Resources logo.
Artesian Resources logo appeared on the NASDAQ's Times Square ticker for Water Day 2014. (Image via ARTNA web site)

WASHINGTON, January 9, 2015 – As we all know—or at least those of us who are not fashionably atheist or agnostic—the Lord giveth and the Lord taketh away. Wednesday and Thursday we got the “giveth” part. Today, as you might imagine, “taketh” has taken the fore, with the Dow off about 200 points at 11 a.m. EST, the S&P 500 down a nasty 22, and the tech-heavy NASDAQ off a nasty 49 and change.

Volume is not huge, so it’s hard to read much into this, except to say that thus far in 2015, the market is clearly lacking in direction, lurching up and down but preferring to lurch just the same.

The big oil price drop has been disquieting to many. Already, high-paying jobs are being at least suspended in many U.S. shale exploration and extraction areas. Along with them, some heavy industry jobs are also beginning to dry up, with layoffs particularly noticeable in the steel industry, which has been doing a booming business domestically manufacturing loads of pipes through which all this bonanza of American oil and gas is intended to flow to customers and refineries alike.

Stories on the Internet and in today’s Wall Street Journal (behind a pay wall) today have noted big job cuts at the U.S. Steel plant in Lorain, Ohio, a scruffy, hardworking town on the shores of Lake Erie, not far from the Maven’s boyhood home.

Lorain has had its serious ups and downs over the years, but was happy to revive is moribund steel industry in recent years, courtesy of the U.S. shale oil boom. Now it’s back to familiar bust territory again, at least for a few months or when the current oil pricing nonsense stabilizes at last.

Similar pains are being experienced across the boards, involving any companies that happen to be involved in shale oil extraction and refining. It hurts, particularly when it seemed as if the economy was finally ramping up, largely by ignoring Obamanomics and relying on the private sector to do its thing.

Unfortunately, unlike a job in the Federal government, the private sector has its booms and busts, and right now, it’s bust time in the oil patch. You’ve particularly noticed this if you’ve been unhappily sitting on a portfolio of oil industry stocks, many of which have lost upward of 50% of their value over the last few months.

This stuff, along with Europe’s continued economic stagnation, China’s steady stream of mixed economic signals, an out-of-control cadre of murderous freelance Islamofascist fanatics, seems to have finally caught up with Wednesday’s and Thursday’s enjoyable but dubious irrational exuberance, leading to today’s minus-200 Dow thud.

(Meanwhile, morning reports that the pair of thugs who murdered at least 12 in the massacre of the French satirical magazine Charlie Hebdo have been terminated by French police have yet to be confirmed.)

Clueless as usual, CNBC’s brainless pundits are ignoring oil and terrorism and are blaming the market’s decline today instead on reports that U.S. wages declined slightly last month. Since when did the working man’s plight ever influence the machinations of rapacious professional traders and headline driven high-frequency trading machines, neither of whom give a fig about their fellow citizens, except when they can extract more money from them?

More likely, the talking heads were just filling the time with meaningless blather while talking their own books, hoping to find more credulous bag holders along the way.

Happily, the Maven is looking out for both you and himself today as we’re all in the same place: we need to make some money, we don’t have carefully coiffed and blow-dried hair (if indeed we have any at all), we don’t make six and seven figure salaries while trashing the American Way on TV, and we’re happy if we can make a few thousand extra bucks in a trading year.

To that end, we’ve noted an interesting investing area popping up in at least two of our advisory services. So let’s talk about it a bit.

Today’s trading tips

In a volatile market like the one that January 2015 has wrought thus far, the average active investor is likely still looking for at least some stability with, perhaps, a decent dividend to go along with it. In other words, a nice annual dividend plus a little bit of capital gains could make many of us happy and allow us to go along with our daily lives without having to stay glued to our computer monitors for the entire trading day.

Which initially made us look at our electric utility favorites, which have been up nicely for many months. Our latest buy here has been El Paso Electric (EE). That company’s dividend is not exactly top of scale. But the company has been on a growth path lately that might compensate us with capital gains as well, so long as the Texas shale oil boom doesn’t completely shut down this year.

But when we think of utilities, we rarely look beyond oil and gas. But in so doing, we fail to notice even the existence of water utilities.

Part of the reason is that local states, counties, or municipalities run most water utilities in the U.S. So we pay for water, generally, by sending monthly or bi-monthly checks to entities that are, in effect, extensions of local governments.

But for a variety of reasons, many individuals, counties, or smaller municipalities rely on private sector water companies that are not part of government entities. We’ve discovered at least two of them that might be worth a look.

The big one is American Water Resources (AWR), a publicly traded firm that manages water and related services in parts of California.

Normally, California is a no-fly zone for us, given the wretched tax and business climate in that state. But when it comes to water, the state generally has to get serious about it, since water is a scarce resource in much of California as it is in the American Southwest.

As elsewhere, most of California’s water resources are run by its own government entities. But AWR runs a substantial operation in this state as well. The business is profitable, currently boasts a stock dividend of about 2.2% per annum, and has been behaving nicely lately even in a wobbly market.

AWR has gotten slightly pricey lately, given the above factors. But if we could catch a decent pullback, we’d be inclined to pick up a few shares. Current price today is in the $30.50-30.80 range, so we’d prefer to see it a bit cheaper. Next ex-dividend date occurs in February. In the meantime, think water, think drought, think American Water Resources.

On the East Coast, we’ve learned of another publicly traded water company closer to our home base near Washington, D.C., namely Delaware-based Artesian Resources Corp. (ARTNA). According to one of our advisory services, the company

is primarily operating in Delaware, but with operations in Pennsylvania and Maryland [as well]. They have been providing water services (and now sewer) to the area for over 100 years–so they certainly have the experience necessary to be successful. Recently they have acquired a couple additional local water systems and are shopping for more—their goal is to be aggressive. We think they have the background that will allow them to move strongly forward.

ARTNA’s latest acquisitions have been in the increasingly urban Cecil County, Maryland region. Checking out the company’s website informs us they first entered Cecil County in 2007, and have continued to expand there, taking advantage of the growing amount of business available in the rapidly mushrooming bedroom communities outside of D.C. and Baltimore, cities that are barely 40 miles apart.

ARTNA shares are thinly traded and thus more speculative than those of AWR, in the sense that pricing can be fairly volatile for a utility. But currently priced around $22.50 and with an attractive dividend approaching 4%, this could be a good long term hold for conservative investors who can enjoy a pretty good payout while they wait for capital gains.

For econ-fanatics in the audience, ARTNA boasts the extra-added appeal of an alliance with the EPA’s “WaterSense” partnership program encouraging the purchase and use of the latest water-saving appliances, mainly in the toilet, sink, tub, and shower categories. In general, we despise the overreaching statist bureaucrats in this rogue agency. But the WaterSense project makes the kind of sense the Maven can buy into. Purchasing water-saving appliances can save you a lot of money on your water utility bills, with payback over a very short time period.

The Maven puts a lot more stock in saving money than he does in proclaiming virtue—re: saving on water bills vs. claiming moral superiority—so he has no problem with such a program. In reality, the WaterSense deal makes ARTNA a bit more of an attractive investment for everyone, whether saving the planet or saving money happens to be your thing.

Neither AWR nor ARTNA are very glamorous companies. Nor will they likely move very fast in this market one way or the other.

But decently-yielding, non-scary stocks delivering a product that each and every one of us needs on a daily basis would seem to be one of few stable places where a conservative investor can park some of his or her funds, collect some income and possibly a small capital gain while waiting for the current market to figure out where it’s going in our likely post-QE timeframe.

Politics, in the U.S. at least, aren’t likely to stabilize until our current part-time President heads for a permanent date on the links after January 20, 2017. So maybe a few stable investments, like electric, gas and water utilities can serve to anchor our portfolios in the meantime as we try to divine a still uncertain 2015 investment climate.

Do remember though, today and always: while these should be at least stable investments for a longer-term hold, nothing is ever guaranteed, so do your own research before you jump into these or any stocks.

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