Is the water industry hitting headwinds in capital markets? Since 2013, seven of the ten firms or ETF’s JOW tracks have prices below expected levels (expected prices based on expected returns projected by Capital Asset Pricing Model since January 2013 applied to prices at end of 2012). Since January 2013, the S&P Index has increased by 30%.
Here is the scorecard comparing how current prices compare to expected prices:
Resource Development Firms
Cadiz (CDZI): -8.1%
PICO Holdings (PICO): -4.4%
Water Utilities
American States Water (AWR): -7.1%
American Water Works (AWK): -4.8%
California Water Service Group (CWT): 0.4%
San Jose Water (SJW): -20.3%
Exchange Traded Funds
Powershares Water Resources (PHO): -9.6%
First Trust ISE Water (FIW): -9.9%
Guggenheim S&P Global Water (CGW): 1.0%
Powershares Global Index (PIO): 8.1%
Powershares Global ETF is clearly the star performer with its price standing 8.1% above its expected price. Guggenheim S&P Global Water stands 1.0% above its expected price. California Water Service Group had been outperforming expectations until recently.
Cadiz (CDZI) is a “lurker”. Its recent victory in superior court dismissing all environmental challenges to its Cadiz Valley Water Conservation, Storage and Recovery Project has reduced significantly the gap between its stock price and expected price. Further positive developments will move the stock price to JOW’s expected price that reflects market expectations about the likelihood of the project as of late 2012. Successful project implementation would send the firm’s stock price above JOW’s expected price.
Written by Rodney T. Smith, Ph.D.