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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Ron Bower who wrote (2944)	1/5/1998 2:18:00 AM
From: Dan Packer	Respond to of 78753

Ron, thanks for your response. My valuation of water companies came from pricing the 'value' and marginal cost of the underlying water assets in some water companies in the western US. The simplest one to understand was SWWC whose price had been knocked down by a chlorine spill. They were being priced on the basis of a reduced dividend and a small water utility in the San Gabriel Valley of LA. Overlooked was their ownership of a tiny water utility in NW Albequerque. Two inches from their district was Rio Rancho which is where Intel located one of their big Pentium fabs. (They also have the management contract for water and waste water in Rio Rancho.) Didn't take rocket science to figure that development in their service area would boom when Intel donated $25 million to the Rio Rancho High School in return for supporting the float of $8 billion of industrial revenue bonds. As I recall I figured that the worth of their water rights in the San Gabriel basin alone was worth two to three times the value of the market cap. Then this year the city of Albequerque threatened to condemn their utility in that city. It appears to be a no go, but the cost estimates were ~$10/share on a $14-16 stock. And they would still have their San Gabriel Co. and management contracts. I like dumb stuff like that. I suspect that the power utilities will have some mispricing with deregulation. An interesting relationship I've found is that in the West, water and power are interchangeable. The water never comes when it's needed to the place it's needed. So ignoring the plumbing, it takes power to get it there. The commodity cost is frequently nil compared to the power cost. But you do have to allocate the capital costs of the plumbing, which are huge, but govt owned, and are by definition mispriced. Most of the water speculation vehicles are concept stocks pushed by brokers. Hardly anyone with a brain follows this stuff. In the land of the blind, the one-eyed guy is king - I try to keep an eye on it. Cheers, Dan