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Pentair's Water Potential


The commercial water segment seems right on the verge of a boom that could easily last for the next five years or so, and Pentair is a turnaround story that should be perfectly positioned to greatly benefit in the form of margin expansion.

"Morning found us calmly unaware
Noon burns gold into our hair
At night, we swim the laughin' sea
When summer's gone where will we be?"
-Summer's Almost Gone (The Doors)

It would have been cruel to use these lyrics on September 4 - the day, for all intents and purposes, the summer is gone. But, today, on August 20, we still have about 14 full days to enjoy - so fret not!

But once again, in the odd way my mind works, summer's end got me thinking about those last few weeks of swimming at the pool and swimming at the pool got me thinking about Pentair (PNR).

If you have watched Fast Money once or twice over the last year, there is a very good chance you have heard Eric Bolling talk about the huge opportunity in water-related stocks. As a matter of fact, he was on the water story long before it was a story.

According to its website, "Pentair, Inc. is a diversified operating company headquartered in Minnesota. Its Water Group is a global leader providing innovative products and systems used worldwide in the movement, treatment, storage and enjoyment of water." It is that "enjoyment of water" part that got the stock in trouble starting in March of 2006, as the stock traded from $41.50 or so down to $26 by September of that year. The market took a "shoot first and ask questions later" posture on any company that had housing market exposure.

And sure enough, with an entire division focused on "pool and spa products" the exposure to housing was right there for all to see. What most of the market looked past however, was Pentair's link to the very strong non-residential construction industry as well a foothold in the agricultural and irrigation segments of the market. The commercial water segment seems right on the verge of a boom that could easily last for the next five years or so, and Pentair is a turnaround story that should be perfectly positioned to greatly benefit in the form of margin expansion.

2Q EPS came in at $0.62 versus street consensus of $0.58 on healthy revenues of $922.6 mln also beat estimates. But 3Q guidance was light and full year guidance didn't inspire investors either. However, a rebound in the Australian market and growth in China helped Pentair increase its sales in the Asia-Pacific region by 34%, and sales in Europe grew by 42%. Both regions appear to be growth areas that will last and the U.S. housing market will not stay abysmal forever.

Currently trading around $35.25, Pentair is in the midst of a pullback after rallying, virtually uninterrupted, from March to July. It looks as though there may be further room down to $33.50 or so, but those who are so inclined should look to "get their feet wet" around those levels - and yes, pun very much intended.

If we wait for the turnaround in the residential housing market here at home, I think the trade in Pentair will be all but over. Better to enter in the shallow end of the pool now than dive into the deep end that may be empty once the U.S. housing market "turns around".

(And while we are on the subject of turnarounds, don't look now, but the Yankees of New York are four games out in the soon to be wild American League East pennant race!)
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No positions in stocks mentioned.

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