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Investing in Water

Don't Get Hung Out To Dry

Written by Nick Hodge
Posted June 14, 2007 at 8:00AM

If you think for one second that the most valuable commodity on this planet is oil, you'd be sorely mistaken. Oil, no doubt, is precious. But we use it only as a fuel or additive for material goods.

Water, on the other hand, is life-sustaining—it has no substitute. We need water. We don't need oil, though we have backed ourselves into a pretty dicey position with it.

And given the fact that fresh water is facing the same decline as oil—if not worse—surely its preservation will come with a premium.

I'll spare you all the depressing details, but basically, when it comes to supplying enough fresh water for the world's population, we're screwed.

Less than 2% of the water on earth is fresh water. And of that 2%, some is perpetually tied up as atmospheric moisture or frozen saturated soil (permafrost) that we can never use.

Put another way, if all the world's water were in a one-gallon jug, accessible fresh water wouldn't even account for a teaspoon of it!

You see, there is no more fresh water on earth than there was a million years ago, but there are over six billion more people.

Making matters worse, world population has doubled since 1950, but water use has tripled. That's pretty daunting.

In fact, if the population rises as predicted, by 2020 the world would need the equivalent of 20 Niles and 97 Colorado Rivers to meet increased demand.

That's going to be difficult to come by. Especially when the World Commission for Water has already said that more than half of the world's rivers are now so polluted that they pose serious health risks.

And per capita access to clean water is diminishing in all developed and developing countries. All of them.

So two questions remain: How are we going to solve this growing problem? And how are we going to profit from investing in water?

I have the answer to both.

Valuable Solutions to the Water Problem and How To Invest In Water

Unlike with oil, no technological innovation can ever replace water. So, the way I see it, there are two ways to capitalize on the water-supply market.

The first—and most obvious—is investing in water through utilities. And this might not be a bad way to go.

In fact, in any random five-year period during the last 25 years, water utilities outperformed all other leading industry groups on a total return basis.

But it gets even better. You see, only about 10% of water utilities are publicly traded, with 90% still owned by state and local governments. And that 90% is currently facing vast expenditures to expand their crumbling infrastructure so they can keep up with rising demand.

The thing is, they never get the funding they need, because, to get votes, politicians opt not to raise taxes instead of raising them to provide adequate fresh water.

And that's just fine. Because water utilities are going to have to get funding from somewhere. And, more and more, those municipally-owned utilities are going public to raise the money they need.

So much so that Lehman Brothers has claimed that "the number of people served globally by investor-owned water companies is expected to rise 500% over the next 10 years."

And with demand for water constantly rising, you can bet those now publicly-traded water companies will be charging a premium for their services.

Check out York Water Co. (NASDAQ: YORW) since it listed in May 1999:

York Water
The High Tide of Investing in Water

That's roughly a 280% gain, far outperforming the Dow's modest 24% for the same span of time—even with all its recent record-breaking closes.

And if the demand for water continues to rise at its current pace, utilities aren't the only ones that stand to make some money... those investing in water will profit as well.

As I recently told our Green Chip Stocks readers, if water utilities are going to continue to provide fresh water, they will need more than a little help from what I like to call the "water works"—companies that design and produce:

  • Pipes
  • Pumps
  • Valves
  • Filters
  • Purification systems, and
  • Water testing and monitoring services

Without those solutions—and the companies that provide them—water utilities would be hung out to dry. The two are inextricably connected.

Still not convinced about investing in water? Take a look at water purification and groundwater treatment company Calgon Carbon Corp. (NYSE: CCC). Over the past six months, they've absolutely exploded along with the chatter about coming water shortages.

Calgon Carbon
These companies are going to make money because
no matter how much it costs, there's no substitute for water—period. The laws of supply and demand don't apply here. Only demand rises.

In fact, there's even been talk about a "water OPEC," a global effort to commodify the world's supply of fresh water.

And while that may be a little extreme, given the state of the world's fresh water supply, it's not totally beyond imagining.

So, wouldn't it be nice to get a piece of the industry's future juggernauts while they're still in their infancy?

You can profit from water investments now. The Alternative Energy Speculator will show you how.

Until next time,

nick sig

Nick


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