Swing Trading Strategies & Stock Picks Since 2003

Roger Conrad, the advisory industry's leading authority on the utility sector looks to American Water Works (NYSE: AWK) as his favorite investment idea for the coming year.

In The Utility Forecaster, the looks at the noting, "We now have the opportunity to buy America's premier water utility franchise at a discount to book value." Here, he explains the situation and his bullish outlook.

"In early 2003, Germany's RWE paid a hefty premium for American Water Works. Five years later in April 2008, RWE's new management took a $1 billion writeoff to unload the company as an independent company in the US.

"As a result, we now have the opportunity to re-enter America's premier water utility franchise at a discount to book value.

"American Water has written off hundreds of millions in good will and overhauled oversight practices that had gone soft under RWE.

"But with third quarter earnings surging 11% on a 6.2% revenue jump -- and more the same expected into 2009--its fortunes are building again.

"Water utilities' steadiness is their primary strength. American, however, is on track to grow earnings close to 10% a year in two ways. First, its regulated utility business is adding new customers as it builds and buys nearly $1 billion in supply infrastructure this year.

"Through September it had won $180.5 million in new rates in 2008 and has another $161 million awaiting final order in eight states.

"American Water's other growth avenue is managing systems owned by municipalities and military bases. Two recently inked contracts will add $677 million in military business over 50 years, as American continues to use its unmatched reach to snare business.

"Like every company investing heavily in infrastructure, American Water faced challenges getting capital this year. With that crisis now easing, the shares should begin to enjoy a sizeable premium to stocks in other industries, translating into solid capital gains. Buy American Water Works up to 23."