How to Dip Into Clean Water Stocks

NEW YORK ( TheStreet) -- Providing clean water to all is a significant global challenge as nearly one billion people lack access to clean water.

The United Nations and organizations such as Water.org are working to address this problem.

There are also plenty of companies that have designed or are developing products and services used in water treatment. In my role as a market strategist, my focus is on identifying companies in this sector that are worthy investments.

Unfortunately, there is very little Wall Street research coverage of companies in this field.

The companies that have water treatment as their main business focus are in the "Utility - Water Supply Industry," and the research reports I read covering specific stocks in this industry tend to analyze 10-K and 10-Q quarterly filings with little commentary on product development and milestones achieved.

I evaluate these stocks using the ValuEngine Valuation and Forecasting Models, the technical charts and value levels, pivots and risky levels from my proprietary analytics.

I have selected the ISE Water Index (^HHO) (recently at 86.23) as a benchmark for the industry. Below is the the weekly chart. The technical momentum (12x3x3 weekly slow stochastic) reading is declining at 29.67 on a scale of 00.00 to 100.00.

The index ended last week below its five-week modified moving average at 87.41. These two technical indicators make the weekly chart profile negative. The chart shows numerous tests of the 200-week simple moving average, now at $75.84, which is the downside risk for the water treatment industry.

chart courtesy of Thomson/Reuters

Here's how to interpret ValuEngine Data: The Valuation column shows the percentage undervalued or overvalued for each stock, where a red number is undervalued and a black number is overvalued. N/A means not available.

VE Rating: A 5-Engine Rating is a Strong Buy, a 4-Engine Rating is a Buy, a 3-Engine Rating is a Hold, a 2-Engine Rating is a Sell, and a 1-Engine Rating is a Strong Sell.

Last 12-Month Return (%): Red is lower, Black is higher.

Forecast One-Month Return (%); Red is percent lower, Black is percent higher.

Forecast One-Year Return (%): Red is percent lower. Black is percent higher. The water stocks projected to gain more than 10% over the next 12 months are: Artesian Resource Company ( ARTNA), American States Water Co. ( AWR), Connecticut Water Service ( CTWS), Consolidated Water Co. ( CWCO) and SJW Corp. ( SJW).

Price-to-Earnings Ratios: N/A means that the ValuEngine data sources could not provide a P/E ratio. You might with to eliminate from the list CTWS and SJW. They have P/E ration of more than 24.

Let's profile ARTNA, AWR, and CWCO to see which classify as candidates for your portfolio to represent a play on clean water for all.

ARTNA has been a light-volume trader so far this year between $18.20 and $19.70, so it would not be my first choice.

AWR has somewhat more volume but is trading just below $39.61, its highest level since April 2010.

CWCO has volume comparable to AWR, but CWCO is poised to challenge its 200-day simple moving average at $8.14. CWCO is the only stock with a Strong Buy rating and has been the worst performer over the past twelve months. Let's look for value levels and risky levels; My weekly value level is $7.58 with this month's risky level at $8.25. Above is potential to my annual risky level at $14.29.

From ValuEngine.com: "Consolidated Water Co. Ltd. intends to develop and operate seawater conversion plants and water distribution systems in areas of the world where naturally-occurring supplies of potable water are scarce or nonexistent. It currently operates a public water utility in certain areas of the Cayman Islands under a 20-year exclusive license from the Government of the Cayman Islands. The company has signed contracts for its first overseas operations in the Commonwealth of the Bahamas."

If you want learn more on how to use ValuEngine to help in your stock selection, go to www.ValuEngine.com and sign up.

At the time of publication, Suttmeier did not own shares of any companies mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.