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Turning Water Into Money: Under the Radar

In a poll conducted by American Research Group this fall, 42% of respondents opposed the city's attempt to pursue control of its water supply while 39% favored it. With a 4.9% margin of error, the poll is a toss-up.

But one poll statistic is alarmingly clear: 82% of those surveyed didn't vote in the 2003 initiative. Pennichuck estimates that the cost of acquisition could cause a 40% price spike for Nashua customers because they would be required to subsidize water transport to neighboring communities.

Those cognizant of the price tag and the city's intention to hire a French company to run the new utility have some political fervor. Worth noting: Pennichuck's second-quarter profit were hampered by a $70,000 appeal-related cost to battle City Hall.

Pennichuck's stock pays an attractive 3% dividend yield and has a low beta, a measure of market correlation, of 0.4. At a price-to-earnings ratio of 48, the shares aren't cheap, but they've ascended 15% in 2009, outpacing the Dow Jones Industrial Average and S&P 500 Index. Larger peers Aqua America (WTR - Get Report) and California Water Service (CWT - Get Report) are more affordable.

Investors seeking a rare small-cap legal-arbitrage play should drive up to Nashua and see what they can dig up. Or better yet, take a swim.

-- Reported by Jake Lynch in Boston.
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