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Takeover Opportunities in the Water Business

By Jeff Clark
Thursday, February 1, 2007

The town of Truckee, California, is saving a fortune this year.
Normally, if you drive around this quiet little mountain town in the middle of January, you're likely to get stuck behind a snowplow. Up to 40% of Truckee's annual municipal budget is spent on keeping the streets clear of snow in the winter. But not this year.
Truckee hasn't seen snow in six weeks.
There's no snow on the trees. There's no snow on the rooftops. There's no snow in the streets.
Quite simply, there's no snow.
And that means that, come this summer, there'll be no water from snowmelt. So while Truckee saves a fortune in snow removal expenses this winter, California will spend a fortune looking for water this summer.
As I enjoyed the view from my rented mountain cabin here in Truckee, I made a quick phone call back home to the East Bay Municipal Utility District to check on the water supply for 2007. After working my way through a series of prompts, I finally got ahold of a live person and was able to ask some questions about the future availability of water.
Does anyone else get nervous when a government bureaucrat says, “Don't worry”?
California reservoir levels are 20% above normal for this time of year. That's great news until you find out that the reservoirs were 50% above normal three months ago. Care to guess what the level will be three months from now if we still don't get any snow?
California experiences a drought every 10 to 15 years. The last drought officially ended in 1992, so we're just about due for another one right now. It's quite likely that a few months from now, California residents will be asked to take fewer showers, put bricks in their toilet tanks, and flush only after number two.
But the seeds of adversity often sprout plants of opportunity. And there are several companies poised to benefit from a California water shortage.
In the next issue of The Big Trend Report, I'm profiling two such companies. I originally planned on profiling three companies, but one of them – Synagro Technologies (SYGR) – was bought out last week.
In fact, there have been a lot of takeovers in the water business in recent years. And as fresh water becomes more and more scarce, so too will companies that specialize in finding it. Larger conglomerates like General Electric (GE) and ABB Limited (ABB) are gobbling up smaller water companies at a breakneck pace.
There are only a few pure water plays in the stock market right now. I think I've found two of the best. But I'm not sure how long it'll be before they're taken over as well.
Best regards and good trading,
Jeff Clark

Market Notes
Major new lows: chip giants Advanced Micro Devices and Micron Technology.
Energy pipeline companies continue to hit highs: Atlas Pipeline, Enbridge Energy, Magellan Midstream, Boardwalk Pipeline, and Valero LP.
Steel companies also continue their tear: Chaparral Steel, AK Steel, Corus, and United States Steel all hit new highs.
Earnings today: Anheuser-Busch, ExxonMobil, Valero Energy, AstraZeneca.
Market Watch
Symbol Price
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%

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