Investing In Water Stocks
Investing in “Blue Gold”
An Investment U White Paper
by the Investment U Research Team
Despite its fundamental importance to life, water is often taken completely for granted. Too many people think the world will never run out of the commodity.
But while there is plenty of water on this planet we call home, only 3% of it is fresh, drinkable water. And much of that is locked up in glaciers, groundwater and soil.
Less than 1% of the world’s supplies are easily accessible fresh water.
This precious supply is under tremendous stress. Marcus Norton of the Carbon Disclosure Project said, “The effects of climate change, increasing population, urbanization, per capita demand and pollution damage to supplies will put even greater pressure on these limited resources.”
Consider how, in 1900, the world’s population was only 1.6 billion people. Today, that number has grown to over seven billion and water consumption has swelled by six-fold. By 2025, it is expected to hit nine billion, putting even more pressure on the Earth’s scarce fresh water resources.
Already over a third of people around the globe don’t have access to clean water. In addition:
- The World Health Organization estimates that 80% of all sickness stems from unsafe water and sanitation. Each year, five million people – many of them children – die from water-related diseases.
- The United Nations forecasts that by 2030, almost half the world’s population will live in areas facing water stress or water scarcity.
- The Population Institute says global demand for fresh water already significantly exceeds supply.
- The International Food Policy Research Institute claims that by 2020, we will need 20% more water than is currently available.
- The 2030 Water Resources Group estimates that global water requirements will soar by over 50% over the next 20 years.
The price of water may be rising, but no one complains when buying the stuff, even though it costs twice as much as gasoline, which we’ll gladly gripe about.
That’s why the current and worsening shortage is leading to an exploding bull market in the world’s most precious commodity and the companies involved in the industry.
Investing In Water…and Taking Advantage of The Supply Gap
The global water industry is currently a $460 billion market. And as the population grows, as pollution increases, supplies become more scarce and more strain is placed on water infrastructure, it’s no surprise that many have dubbed water “blue gold” because of its immense profit potential.
According to Fortune Magazine: “Water is one of the great business opportunities. Water promises to be to the 21st century what oil was to the 20th century: the precious commodity that determines the wealth of nations.”
It’s easy to see why some investors consider it one of the most profitable plays out there. Demand already outstrips supply by a wide margin… and the gap is getting bigger. We’ve already mentioned that the population of the earth is growing at an exponential clip of 1.5% – 2%. What we haven’t said yet is that our water use is growing even faster at 2.5% – 3%.
When you take in household use, crops, bathing and drinking water, the average person goes through over 200 gallons a day. Much of that comes from agricultural needs, which account for about 70% of all water usage. And we all know how important our crops are.
But it’s not just agriculture… A whole range of economic activities and industries will be affected globally if we face water shortages. Everything from the food and beverage industry to the energy industry to high-tech businesses– – such as pharma and semiconductors – rely on blue gold in order to function properly.
Fortunately there are solutions out there… And if you invest in the companies providing those solutions, you could make a tidy profit.
Four Profitable Sectors to Invest in to Help Solve the World’s Water Issues
There are four main segments of the broad, global water industry: water distribution and management, advanced water treatment, demand-side efficiency, and water and food.
Water distribution and management involves water infrastructure. Some emerging economies don’t have any sophisticated means for delivering water, whereas many developed countries rely on rapidly deteriorating systems.
Much of the U.S. water infrastructure has been in place since World War II, so it is no surprise that so many of its water systems are in disrepair. Naturally the investment required to repair and upgrade them is staggering.
Last year, we believed that the total cost would be a yearly $14 billion for drinking water systems. Add another annual $19 billion for sanitation water systems. Added up, it will take $1 trillion over the next two decades to repair or replace the worn out infrastructure.
The Science of Energy Innovation
Advanced water treatment involves a wide variety of companies involved with the treating, recycling and re-usage of water. Water quality issues are becoming just as or more important than water quantity issues.
What is often obscured is that, even with stepped-up efforts in global water treatment, vast amounts of potentially valuable wastewater will continue to be produced for the foreseeable future. In fact, it is estimated that 1,500 cubic kilometers of wastewater is produced every year.
On the bright side, treatment technologies for removing the harmful components from wastewater have become increasingly effective. They may actually allow it to become a potential source of valuable raw materials – including water and energy – that can be used productively for energy and irrigation.
One company involved specifically in the water treatment sector is Danaher (NYSE: DHR). Meanwhile, Veolia Environnement ADR (NYSE: VE) and Suez Environnement ADR (OTC: SZEVY), two French companies, are hard at work in the water services business.
A sub-sector in the water treatment area involves desalinating seawater. This is a very solid, long-term water investment since there is so much more salt water available. Sothat kind of business could potentially solve all of our supply problems.
With the availability of water dwindling, more and more places are turning to converted salt water to solve their crunches. According to the International Desalination Association, there were 14,451 desalinization facilities around the world in 2009, many of which are in the wealthier oil states in the water-starved Middle East.
According to Lux Research, desalinated water supply in 2000 was 9.8 billion cubic meters… but is set to reach 54 billion cubic meters by 2020.
Those plants are currently very expensive and energy-intensive. And while the cost does continue to come down as we make progress using membrane treatment to eliminate the salt, we haven’t yet reached a point where it is really economical.
Still, there are companies working hard to change the status quo. That includes Energy Recovery (Nasdaq: ERII), Consolidated Water (Nasdaq: CWCO), Dow Chemical (NYSE: DOW) and General Electric (NYSE: GE).
Water, Water Everywhere and Not a Drop to Drink
The third segment of the industry – demand-side efficiency – offers some of the simplest solutions for managing water resources.
Water information technology is a multi-million dollar market and growing rapidly. A large part of the sector focuses the use of smart meters to monitor water usage. Of the businesses that deal with that issue specifically, Itron (Nasdaq: ITRI) is a good place to start looking.
And last but not least, humans obviously rely on large amounts of water to grow their food. One company directly involved in that very business – through agricultural irrigation systems – is Lindsay Corporation (NYSE: LNN). Meanwhile, large, multinational companies like Nestle ADR (OTC: NSRGY) and SABMiller ADR (OTC: SBMRY) frequently work with farmers around the world to improve their water usage.
For investors attracted by the breadth of opportunities in the water sector, there are two ETFs that offer broad exposure. These are PowerShares Global Water Portfolio ETF (NYSE: PIO) and the Guggenheim S&P Global Water Index ETF (NYSE: CGW).
Of course, you’ll want to do your homework, as not every company involved in H2O is going to produce triple-digit returns… or even a profit at all. But many will.
And the sector as a whole should do very well for the foreseeable future.
The Investment U Research Team