Source: Penny Stock Detectives This Penny Stock Climbed 30% in Under Two Months; Will Fourth-quarter Results Send It Higher? The summer of 2012 will be remembered, among other things, as the summer of drought. At the end of September, severe to extreme drought affected about 37% of the contiguous U.S. About 52% of the contiguous U.S. fell in the moderate to extreme drought categories. (Source: National Climatic Data Center, State of the Climate; Drought September 2012.) The Great Lakes may be teeming with fresh water, but that doesn’t mean that Americans are getting access to fresh water. In rural areas, farmers are losing crops; in urban and residential neighborhoods, communities are looking to maximize their resources by upgrading outdated systems. In the U.S., a large percentage of the water infrastructure has or will reach the end of its useful life in the coming decades, requiring rehabilitation and/or replacement. (Source: The U.S. Council of Mayors Urban Water Council, National City Water Survey 2005 November 15, 2005.) An uptick in commercial and residential starts may only exacerbate the problems of building and maintaining water infrastructure. It’s important that communities safeguard these shared assets over the long term. As a result, new construction starts could translate into a potential boon for the water infrastructure industry. Mueller Water Products, Inc. (NYSE/MWA) is one of the largest manufacturers and marketers of hydrants, as well as valves and pipe fittings in the U.S. and Canada. Its flow control products are used in new and upgraded municipal, industrial, and residential and non-residential construction projects. Services provided by Mueller include water distribution networks, water and wastewater treatment facilities, fire protection systems, and gas distribution.
The penny stock has a market cap of $765.0 million, forward price-to-earnings ratio of 28.7, over $53.0 million in cash, and levered cash flow of $133.0 million. In addition, Mueller Water Products provides an annual dividend of 1.5%, or roughly $0.07 per share. On July 31, Mueller announced that third-quarter revenue increased 6.3% yearover-year to $275.9 million. The penny stock swung to third-quarter profitability on $9.5 million, or $0.06 per share, versus a loss of $2.7 million, or $0.02 per share, last year. Company CEO Greg Hyland noted that the penny stock benefited from a positive residential construction market. If construction starts continue to improve, they should, he says, help push sales higher. On October 17, the U.S. Department of Housing said new housing starts surged in September to their fastest pace since 2008. A sign, some maintain, the housing sector’s recovery may be gaining sustained traction. Housing starts increased 15% last month to a seasonally adjusted annual rate of 872,000 units. (Source: U.S. Department of Housing and Urban Development, U.S. Department of Commerce, “New Residential Construction in September 2012,” U.S. Census Bureau News October 17, 2012.)
Chart courtesy of www.StockCharts.com After a bullish December, Mueller entered 2012 in a holding pattern, breaking out to the upside in early March, when it announced it had streamlined operations. The 50-day moving average crossed over the 200-day moving average; a bullish marker. Since then, the penny stock’s share price has been trending, for the most part, steadily higher. Solid third-quarter revenue growth and a return to profitability after three quarters helped Mueller’s share price climb 9.5% on August 1, with new support near $3.75. Since the beginning of September, speculation has helped Mueller’s share price climb 30%, when it hit a new 52-week high of $5.02 on October 1. After testing resistance near $5.00 in early October, Mueller’s share price consolidated briefly near $4.75. With certain revenues being generated from new housing starts, it’s possible Mueller’s share price could experience a speculative surge on the heels of strong U.S. housing data. The penny stock’s share price could also inch higher as we close in on October 30, the day the company releases its fourth-quarter financial results. While strong U.S. housing starts do not necessarily point to an economic turnaround or sustained growth for Mueller, it will be interesting to see how investors respond short-term to the penny stock’s third-quarter results.
Source: Penny Stock Detectives