Analysis: AWK

The National Oceanic and Atmospheric Administration (NOAA) has issued its long-range weather outlook for June, July, and August -- and as we can see in the chart below, the majority of the country will likely be facing a hotter-than-average summer.

We translate this to mean greater use of air conditioning, which will bring added demand pressure to electric utilities as we well as drive water consumption. The latter is a positive for the core business at Action Alerts PLUS holding American Water Works (AWK) , during its seasonally strongest time of year.

Typically, the September quarter is American Water's largest revenue and EPS quarter of the year, followed next by the current quarter. As we see the chart below, that has typically led to a strong move in AWK shares during the September quarter.

Despite this seasonal pattern, AWK shares have retreated from the recent high near $152 in April, which, as we called out in last week's Roundup, puts them back at very attractive levels. That is is leading us to put some additional capital to work in AWK shares today. This will also further build out the portfolio's dividend-income stream.

Pending catalysts for AWK shares include announced wins of other pending rate increase cases, including those in Indiana, Missouri, and California, among others. We also see a few American Water insiders have been scooping up shares, including independent board member Michael Mayberry buying at $142.35.

After you receive this Alert, we will buy 150 shares of AWK at or near $144. Following the trade, AWK shares will account for roughly 3.4% of the portfolio.

(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)