Water Is the New Oil. Here’s a Good Way to Play It.
The vagaries of the market occasionally present terrific chances to buy low and sell high 'steady Eddy' stocks.
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Water is certainly a key resource for anyplace experiencing population growth. Water industry utilities get paid to provide safe and clean water for delivery to customers.
As with electricy, and now internet, the service is a necessity rather than a luxury. Utility commissioners set rates and profit margins to a great extent, making shares of water companies among the most predictable of all stocks.
Occasionally, though, the vagaries of the market present terrific chances to buy low and sell high on these “steady Eddy” stocks.
The Covid-panic period drove Artesian Resources ARTNA down to $30 from a 2017 peak of $43.22. Less than four years later the shares briefly changed hands at $63, 110% higher, plus cumulative dividends of about 14%.
When ARTNA topped out at $63, its forward P/E was 33.2x, about 45% higher than the stock’s average P/E of 22.9x.
As of Jan. 6, 2025, Artesian’s forward multiple of 15.2x weighed in at a 33.6% discount to normal. Additionally, it 3.98% yield is 51.3% greater than the firm’s average yield of 2.63%.
The table below details the two-year changes in major fundamentals accompanied by the large share price cut from the close on Jan. 6, 2023.
Value Line covers ARTNA in its small-cap edition. Artesian owns five regulated utilities in Delaware, Maryland, and Pennsylvania plus three non-regulated subsidiaries providing services to the water-related companies.
The data boxes I added to the Value Line sheet show that Artesian has not been valued more cheaply at any time in the past decade. It now represents better value than was available to buyers at the Covid-panic bottom, just ahead of a three-year run to the all-time high set almost exactly two years ago.
Simply returning to its normalized P/E since 2016 could justify a rebound to $45.80, plus any dividends pocketed while waiting for the upturn.
That implies upside potential of about 51.3% from ARTNA’s Jan. 6, 2025 closing quote 0f $30.27.
I am not alone in my positive view on these shares. Yahoo Finance notes that the stock finished at the lowest price in over a year, down from a $41.29 52-week high.
Its 12-month price target for Artesian, at $52, exceeds my own.
If they prove correct, total return will be 75% or so over the coming year.
Independent research from FAST graphs comes to a similar conclusion.
They document that ARTNA gave traders exit opportunities between $39.89 and $61.66 during each of the last eight calendar years.
FAST graphs calls Artesian’s normalized multiple as 22.6x, slightly lower than my calculation.
Applying that lower P/E to FAST graph’s projected EPS for 2025 produces
year-ahead total return potential of 53.3%.
What more do you need to know to see that Artesian Resources offers excellent upside along with an almost 4% current yield?
Risk appears limited as the current quote is just pennies away from the stock’s Covid-panic low and well below every year’s peaks dating back to 2016.
If you choose to establish ARTNA positions use limit orders and let the shares come to you. Average daily volume is just 30 to 50-thousand.
At the time of publication, Price was long ARTNA shares.
