Basin Water (BWTR – Nasdaq)

Dear Bottarelli Research Member,

Boy oh boy! I told you last week that JA Solar (JASO – NASDAQ) moves “faster than a greased pig in a rain storm” and boy was that right! JASO blasted right through my near-term target of $40 and hit a high of $43.87. I hope you took some of your profits off the table, as we’re getting very close to a 100% gain in very short order. Lock in your gains and let the second half of the position ride!

On that same topic, our new 3% rule should have gotten you into our newest solar play Solarfun Power Holdings (SOLF – NASDAQ). Make no mistake, the solar industry is red hot — and it’ll only get hotter — so maintain your position in SOLF.

I’m also hearing some pretty interesting things about Parker Drilling (PKD – NYSE). The stock has now recovered (as we thought it would), and with drill rigs getting harder and harder to contract, I think PKD is going to surprise a lot of people — and soon. With their tool rental segment continuing to experience high demand, I’m confident that PKD will do extremely well in the months ahead. I also feel the same way about Input/Output (IO – NYSE), so maintain your position in PKD and IO for more upside.

Speaking about doing extremely well, let’s transition over into this week’s new pick, because this little company will provide us with more tremendous opportunities. Since the beginning of the year, this company has been actively growing their business that specializes in a much needed commodity: Water. We all know that water is essential for our daily survival, but what recently caught my attention are the huge problems we’re now facing with bottled water.

For one thing, the excessive levels of trash left behind from bottled water (and other water bottle hybrids) is truly mind boggling. Plastic water bottles can take 1,000 years to biodegrade, and 9 out of 10 water bottles are NOT recycled. That means 30 million plastic bottles per day end up as trash or littler — an unacceptable number if you ask me.

You’ll probably think I’m nuts, but after the 4^th of July weekend, I trudged out to my local landfill to see things with my own eyes. And folks, I couldn’t believe what I saw. Truck after truck kept dumping huge piles of plastic bottles, and I live in a small city! I can’t fathom the amounts of plastic bottles that major metropolitan areas like Chicago or Washington D.C. have to process. This is a tremendous strain on our country that nobody is talking about, but it gets even worse. You see, new research from John Hopkins suggests that there’s a whole lot more to this story than you could even imagine.

According to new findings, plastic containers should not be used for heating or freezing foods or liquids. The combination of fat contained in food, high heat, and plastics releases “dioxin” into our food — which is then directly inserted into your body’s cells when you consume the food or beverage. Dioxins are highly poisonous to the cells of our bodies. Dioxin chemicals cause cancer, especially breast cancer. When we microwave food in plastic containers, the high heat causes poisonous toxins to actually melt out of the plastic and drip into our food. In addition to heating, plastic bottles frozen with water also release dioxins from the plastic. This is troubling new research that should serve as an eye-opener to everyone in the country using plastic containers. In fact, this is so critical, I give you my full permission to forward this information from this week’s bulletin to anyone important in your life.

I truly believe that this story is just starting to hit home across the nation, and that’s why I feel it’s the ideal time to get positioned in this weeks’ newest pick. I’ve discovered a company that has been quietly developing a new technology that has been proven to produce clean, drinkable tap water.

Without question, any company that can solve the plastic bottle waste problem, produce a commodity that every single person needs to survive, is growing their business at a tremendous rate, and could introduce new technologies that make undrinkable water now drinkable will experience explosive growth. As a small-cap investor, this is an opportunity that we have to gain exposure to now! The company is called Basin Water (BWTR – NASDAQ), and let’s buy shares at or under $10.00. Remember to use our new 3% pay-up rule if necessary.

With headlines coming out about plastic bottle trash, combined with the cancer-causing dioxin chemicals contained in plastics, owning a growing water company like BWTR looks like a great position. But before handing things over to Bryan, I want to point out that the summer months are usually when the prices of stocks like Minera Andes (MNEAF.OB), Polymet Mining (PLM – AMEX), Idaho General Mines (GMO – AMEX), and Metalline Mining (MMG – AMEX) take a dip. But so far every stock has been holding up extremely well. In fact, GMO just hit a new high today at $8.10!

Not only that, but MNEAF just celebrated the official start-up of production at the San Jose silver & gold mine in Argentina. What should have us all excited is the fact that this production is all un-hedged. In other words, MNEAF is not bound to sell anything below market price (as a lot of majors have done). They’ve also made it known that they’re interested in partnering with others, so I would not be surprised if someone came in and bought MNEAF outright. If you don’t currently own shares of Minera Andes (MNEAF.OB), now may be a great time to start.

US Geothermal (UGTH.OB) has also moved higher as they get closer to production. I’m going to say this right now so you are ahead of the crowd: If we see $4.00 (or better) on this stock, take half of your profits off the table! The stock traded as high as $3.10 on July 10^th, so we could easily see $4.00 in the near future. In fact, as we get close to production, you’ll probably see increased activity in the shares, so be ready to lock in half of your gains if prices move up to $4.00 intra-week.

On that note I’ll turn it over to Bryan. Have a great week everyone!

Sincerely,

Basin Water (BWTR – NASDAQ) Can Grow its Revenue at a 40% Annual Rate Through the End of the Decade

A hypothetical situation: Let’s say you’re the CEO of one of the largest investor-owned water utility companies in the country, like California Water Service Group (CWT – NYSE) or American States Water (AWR – NYSE).

In a routine safety check, it’s discovered that your primary well-water, which serves hundreds of thousands of your customers, contains dangerous levels of nitrate. Another one of your secondary wells contains arsenic, perchlorate, and uranium. This is a HUGE problem.Acting as CEO, you know that this is a major safety violation that could have momentous effects on your entire business. So what do you do?

If you’re smart, you immediately pick up the phone and contact Basin Water (BWTR – NASDAQ).

Based out of Rancho Cucamonga, California, BWTR designs, builds, and implements systems that treat contaminated groundwater. They serve anyone who supplies groundwater resources, like utilities, municipalities, special districts, and real-estate developers. The company has installed water treatment systems that process over 75 million gallons of installed water per day to thousands of United States residents, and their patented, next-generation ion-exchange system is what separates them from other water contamination competitors.

BWTR’s ion-exchange system removes arsenic, nitrate, perchlorate, uranium and chromium VI, but unlike other water-treatment technologies, BWTR’s ion-exchange system has been recognized and approved by the Environmental Protection Agency (EPA) as the “best available technology” for this segment. This tells you that Basin Water is a proven solution that has a specific market niche cornered.

With a small $182.15 million market cap, it’s clear that BWTR has a lot of room to move higher. In fact, when you compare BWTR’s $182.15 million market cap to the $5.89 billion market cap of filtration and purification manufacturer Pall Corporation (PLL – NYSE), (which is BWTR’s only other “true” competitor), you’ll see just how much potential BWTR offers early shareholders like you and me.

To be honest, BWTR is the only “pure play” in water contamination and treatment — so companies like Pall Corporation do not act as a direct competitive threat. In fact, not many investors realize this, but Basin Water is a leading supplier of nitrate removal plants in the United States! But to fully understand the potential of Basin Water (BWTR – NASDAQ), I’d like to share with you a real-life situation that occurred in their Salinas District of California.

Salinas is located about 100 miles south of San Francisco. Its’ known as the “Salad Bowl of the World,” because it produces 80% of our nation’s lettuce, 50% of our cauliflower and mushrooms, 25% of our celery, 60% of our broccoli, and 90% of our artichokes. Obviously water is critical to Salinas’ agricultural economy — and they’re also 100% dependent on 54 groundwater wells for drinking water. But at the beginning of 2002, 34% of their wells had to be shut down because of unacceptable levels of nitrate and uranium.

• Nitrate contamination has been linked to a variety of cancers and diseases including “blue baby syndrome.”
• Uranium occurs naturally in the earth’s crust and emits radiation as it decays.

Historically, groundwater contamination simply meant that California Water Service Company (who provides water services in Salinas) needed to drill new wells to improve water quality and continue meeting the demand. But with new California environmental restrictions — combined with deteriorating water quality across all wells — further well drilling was no longer possible. Not only that, but the uncertainty of drilling new wells combined with electricity costs that soared 50% equated to $6 million in added costs that could not be passed onto the customer. Add it all up, and the water situation in Salinas was in serious jeopardy.

So, to research the best possible solution, California Water Service Company commissioned a six-month study to evaluate their options, and BasinWater’s solution blew them away. BWTR’s technology was able to simulate six months of pilot testing in just one hour — giving Cal Water an extremely accurate assessment of cost, post-treatment contaminant levels, and waste rates.

Not only that, but since water wells in Salinas were scattered throughout residential areas, a key concern was the size of the treatment facilities. This posed no problem for Basin Water, because their self-contained systems stand less than 10 feet tall and are easily screened by architectural walls and foliage. For an example of what this looks like, Basin Water’s 1000 GPM Uranium Removal System is pictured below.

As you can imagine, Salinas chose BWTR to treat their groundwater contamination problems, and the results were spectacular!

• The first well, which was shut down due to high uranium levels, brought contaminant levels down to less than one-tenth of one percent (0.01%).
• The second well, which was shut down for high nitrate levels, brought nitrate levels consistently below 20 ppm with no pH spikes. (The State of California mandates a nitrate level below 45 ppm.)
• The third well, also shut down for nitrate contamination levels twice as high as the second well, came down below 20 ppm as well.

In the end, all the wells in Salinas that had been shut down for deteriorating water quality were promptly treated and returned to service. Upon seeing these amazing results, Cal Water signed a ten-year contract with Basin Water until 2012. And no wonder. BWTR’s patented system produces one-tenth of the waste of a conventional ion-exchange plant. And although up-front cost is about 20% higher than competing water treatment solutions, a 10-year contract (like the one Cal Water signed) ends up being 50% less than any other competitor.

And that’s the thing: The Salinas story is just one of hundreds, perhaps even thousands, of arrangements that Basin Water could secure over the next 12 to 24 months.

As you read this, BWTR currently is serving the Arizona Water Company, the City of Avondale, the Baldy Mesa Water District, the Coachella Valley Water District, the East Valley Water District, the Hi-Desert Water District, and the City of Pomona. I fully expect this list of customers to exponentially increase as water contamination becomes more and more threatening and prevalent across the country.

William Gibson from Nollenberger Capital Partners agrees. He has a 12-month price target of $12.80 on BWTR, and he justifies that number by saying, “the company can grow its revenue at a 40% compound annual rate through the end of the decade, with even greater growth off a small base for earnings.” This alone could hand you a sizable return.

But don’t forget, I haven’t even mentioned the plastic water bottle catalyst that Mark touched on above!

Americans use 2.5 million plastic bottles every hour, and now that plastic water bottle health concerns are becoming more prevalent, you could very well see a transition away from plastic bottles and back to drinking tap water. This further supports the idea of investing in BWTR today. Just consider this statistic:

Plastic water bottles can take 1,000 years to biodegrade. Nine out of 10 water bottles end up as garbage or litter, equating to 30 million trashed plastic bottles per day.

But even worse, there’s mounting evidence that plastic containers are leaking toxins into beverages we’re drinking and foods we’re eating. According to a Canadian news source, “There’s empirical evidence that these plastic ingredients are now in the bodies of every citizen. I am quite sure that a few years from now we will look back at these toxins and shake our heads and wonder ‘What the heck were we thinking?”

The investing thesis is clear: Any transition away from plastic water bottles will lead consumers right back to their water faucets, and this could spark interest in Basin Water (BWTR – NASDAQ) like never before. Let’s get positioned now to capitalize on this urgent situation in the best possible way: By owning shares of BWTR!

PLAY: Buy shares of Basin Water (BWTR – NASDAQ) at or under $10.00, good for the week.

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Sincerely,