After weeks of laziness, I'm finally getting around to reviewing the water industry. Unlike solar energy, which has been promised as the way of the future for several decades now, the water industry has been stealthily sneaking up on everyone and could be a major player in the next decade. Water stocks are typically in two forms, companies that will provide the infrastructure to deliver water to its customers (in the metro Detroit area, we get our water from the city itself) and companies that provide the treatment of water, such as desalinization or sewage treatment.
Some experts see clean, drinkable water as the next commodity to incur global shortages, potentially even scarcer than oil. While water might be something most Americans take for granted, happily sipping our VitaminWater and other bottle water products, in much of the world potable water is hard to come by. In any area where the climate is very hot or arid, clean sources of water are few and far between. And if they become contaminated, either by human waste or parasites in the area, typical in Africa, the quality of life in the region is severely diminished. In most third world countries there are frequent water shortages, and even in places like California, water is often at a premium. Costal cities have plenty of salt water, but current desalinatization technology is expensive and slow.
Enough doom and gloom, how can one profit from the need for clean, potable water? First, and probably the safest bets are on infrastructure companies (that could benefit by Obama being in office) that provide the water directly to the customer. Some examples mentioned in Men's Health BestLife are American Water (AWK), Badger Meter (BMI), Nortwest Pipe Company (NWPX) and the index fund PowerShares Water Resources Portfolio (PHO). The second is desalinization and treatment companies, such as Energy Recovery Inc. (ERI) (there are many more start-ups, but many are privately held at this time).
Note: Most of the information for this analysis came way of two magazine articles, Get Flush With Liquid Assets by Rana Foroohar in the November 2008 issue of Men's Health BestLife and Blue is the New Green by Adam Bluestein in the November 2008 issue of Inc. Magazine. Yes, these both are not finance magazines, but what our club is finding out is that to be a successful investors, you have to know what others don't. Outside reading is a great place to find that information.
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6 comments:
What do you think about investing in a company like Proctor & Gamble (NYSE: PG) which is a great company for lots of other reasons, but also owns PUR water filtration systems? They make filters that go on your faucet, in your refrigerator, as well as making filtering pitchers and bottles.
I think a division like this might see some real growth for the reasons mentioned in the original post, as well as for reasons related to the waste created by bottled water. I looked up Brita which is a competing company, but it appears to be privately held in Germany.
As an engineer for a bearing company in industrial business, I know that the two positions we recently added more engineers to was mining/agriculture and pumps/compressors. I deal with the latter. To me, this shows that those are two areas that are gearing up for growth in the coming years. This even happened before Obama's democratic nomination and presendential win. ITT Corporation's subsidiary, ITT Flygt is a Swedish company who is the largest water pump supplier in the world. And all information I have seen so far, namely a summary of a report by ITT, states that the water industry will see growth of something like 300% in the next 5 years for ITT alone. (Full disclosure: I currently own stocks in ITT) Other companies similar to ITT are Schlumberger and Flowserve, both of which are in Jim Jubak's 50 stock list.
Now I think of "Water" as a sector in itself worth following.
I think basic filteration, including the filters and the pumps to go with it, are the more mature areas of water technology that will see plenty of growth. People are starting to realize bottled water is a waste of resources, and will migrate more to filtered water. Countries with questionable water supplies will look to pumping technology, but I think the pumps will be more hand driven because they don't have a reliable electricity source. But being aware of some of the more experimental technologies are important because in a few years when they start to go to market, that knowledge will give one the upperhand as to companies to invest in.
To answer your question about P & G, I am curious to see how much revenue Pur brings in before buying that company solely for access to the PUR filter division.
A water-based index fund: CGW. The same company also has ETF's for general infrastructure, a lot of commodities, and even chinese real estate.
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