Figure 1 Hypericum perforatum or St Johns Wort

This is the answer I received to the question on who was the first to use St John’s Wort (SJW) for depression.

Introduction

It may seem strange but in a discussion on St John’s Wort, I asked the dumb questions “Who was the first use SJW for depression and why? Did they notice their goats were falling off cliffs or jumping around madly?”

The standard answer always with herbs, is somebody went with their intuition. The trouble is there is a big gap between the yellow flowers will make you happy to working out a dose of 300mg of the plant extract taken three times daily will relieve depression.

The Received Answer

The answer I received is that SJW came out of research and development in the noble medieval institution, the abbey. The Abbeys of the time were large economic institutions many of whom did train many monks in various specialities including herbal studies. While the abbeys were self-contained institutions some things had be bought from outside mostly for writing and the luxuries that could not be made locally. One of the more seemly goods an Abbey could produce was always pharmaceuticals.

One of the tasks that a young monk would be required to do is to develop a better understanding of a chosen herb. This would end up being the master work of the monk that he would be required to complete before he could leave the abbey and go to work at another place or start a new abbey. The monk would literally try out the herb. There were the occasional lethal failure and in the black book that was kept by the head herbalist monk, a notation was made that herb X was (bad pun) a dead end.

The young monk would normally pick something that was local and not too rare and not known to be lethal. Then he would check the background to this plant and see if there was any known value. Various parts of the plant would be ingested or extracted and the extracts taken. He would normally ask a couple of fellow monks to also take some to see how it affected them. It was explained that the SJW was a useful plant and that it was associated with the green/water or phlegmatic humour. It was used to treat or balance the yellow/fire or choleric humour. Lo and behold one of symptoms of the excess of choleric humour is irritability which happens to be sometimes a symptom of depression.

Since the above is an intuited answer to a question, I cannot defend the above answer.

Unlike oil, gold, and other such commodities, water is the one commodity we must have to live. And I don’t even think about it. I don’t have to. Clean water is delivered to my home and where I work. It’s always available, and it’s cheap. Will it always be this easy?

Living in Arizona, one of the fastest growing and driest states, I thought back to a discussion I heard on NPR about population migration. I remembered this startling prediction: the Southwest will be riddled with ghost towns when water runs out, and those looking back 50 years from now will be mystified as to why people ever wanted to live there. Last year 26% of the Southeast was covered by an “exceptional” drought – the National Weather Service’s worst drought category.

Consider these worldwide facts from the United Nations’ Human Development Report 2006:

1. Less than 1% of the world’s freshwater is easily accessible.
2. 1.2 billion people lack access to freshwater, and 2.6 billion are without adequate sanitation.

More people with higher living standards, pollution, and climate change may be pointing to water shortages down the road. A key example, China has 20% of the world’s population but only 7% of the water. Will China have enough water to support its rapidly growing urban population?

The water industry should be ripe with investment opportunities. I put together a group of 18 stocks, certainly not all-inclusive of ways to participate in the industry, to begin to find out:

York (YORW), Pennichuck (PNNW), Middlesex (MSEX), Connecticut (CTWS), Southwest (SWWC), Artesian (ARTNA), SJW (SJW), American States (AWR), Aqua America (WTR), and California (CWT) are all domestic water utilities.

Mueller Industries (MLI) – tubes and fittings used in water distribution systems.

Watts Water Technologies (WTS) – water safety and flow control products.

Nalco (NLC) – water treatment chemicals and services.

Flowserve (FLS) – flow control equipment.

Gorman-Rupp (GRC) – pumps and fluid control equipment.

Calgon Carbon (CCC) – products to purify water and air.

Veolia Environment (VE) – water treatment services based in France.

Consolidated Water (CWCO) – desalination plants and water distribution systems in the Caribbean.

I used Fast Track to get a quick study on the group and find potential buy ideas:

1. These are mostly small cap stocks, and they are not widely followed on the Street. Thirteen stocks have market capitalizations under $ 1 billion. Thirteen stocks are covered by 5 analysts or less, and 9 stocks by 3 analysts or less.
2. Financial leverage is high, with long-term debt to total capital averaging 40.9%, ranging from 0% for Gorman-Rupp to 74.1% for Nalco.
3. Free cash flow was negative at 10 companies in 2007, and 7 companies posted negative free cash flow in each of the last 5 years. These are all utilities.
4. Thirteen stocks had P/E’s below their high / low 5-year average. Only two stocks, Mueller and Watts, also had PEG ratios that were below both their industry and the S&P 500.
5. California Water was the only company where management was a net buyer of stock.
6. The Street is not particularly enamored with this group of stocks. There are 40 purchase recommendations out of a total of 86 ratings, so there’s room for ratings upgrades. Aqua America seems to be the darling of the group with 10 analysts following the stock and 9 recommending purchase.

Here’s my take:

1. I was disappointed to find that Flowserve was the only stock that passed my Fast Track screen, having failed no more than 3 categories. But Flowserve is really a play on oil and gas, which accounts for 41% of their business, as opposed to 6% for water.
2. Only 3 companies, Veolia, Flowserve and Calgon, did not report disappointing earnings in any of the last 4 quarters. But Street analysts have held their earnings estimates steady at 12 companies. Watts pre-announced an earnings disappointment for their March quarter, citing weak construction here, slowing economic activity in Europe, and even problems in China. While this could be unique to Watts, is it a harbinger of more disappointments at other companies?
3. No company in the group delivered consistent earnings growth in the last 5 years. This, and that Watts is a pure play on water makes me question whether the water industry’s growth story has really kicked in yet.

I’ve decided to stay on the sidelines for now.