Heat Wave = Water Stock Profits

Written By Brian Hicks

Posted July 27, 2005

Dear Wealth Daily reader:

Tuesday evening, while sipping a glass of wine and contemplating the water market, I was jolted out of my thoughts by a 5.6 magnitude earthquake.

Of course, I began wondering, is this the end?

Has the count-down to doomsday begun?

Then, as quickly as it began, the quake ended. No damage, and not a drop of wine spilled.

Even without the interruption of an earthquake, it was hard to imagine the heat wave gripping most of the country. With the mercury threatening to dip into the 40s at Montana compound, the effects of the heat wave, and the drought, seemed almost fake.

I spoke with a contact of mine in Phoenix just last Wednesday, at 9 AM local time, when it was already 112 degrees! Her comment: "Send ice water!"

Now, I admit that seasonal weather patterns are only short-term events in terms of the water market. But, they do allow us a window of inspection…a first-hand view of just how vital a commodity water is.

What’s the number one driving force behind the water market?

Demographics.

At 6.4 billion and climbing, the world’s population is expected to exceed 9 billion by 2050. It’s a lock-cinch that water usage will have to rise along with population.

And to make matters worse, more than 80% of the world’s people live in developing countries and nearly 40% of them are children and teenagers, living in poverty.

In fact, many of these future global residents will be born without any reliable, regular access to water.

Nearly four in five people in the world are considered poor, existing on less than US$10 per day.

Yet developing countries like India and China are experiencing population growth and rapidly improving standards of living.

And continued research and development of advanced water delivery and treatment technologies are already solving these problems.

All of this is why the Dow Jones Water Index is sitting at record highs. And it’s why all of the water companies I follow in my PT portfolio are up.

In fact, the Water Index has gained 68% in the past year alone, a reflection of just how solid this sector is.

Take a look at the chart:



However large the global market is, water is also a huge issue in developed economies as well. Especially right here in the US.

Aside from the fact that municipal water systems are decrepit and in need of repair and replacement, many areas in the US are already experiencing a serious water shortage.

And, in some cases, it’s only getting worse.

For instance, California’s water usage is expected to jump by 40% over the next 25 years.

Incredibly, much of that water, if current usage trends persist, will be used for landscaping.

Now, it’s unlikely we’ll see a 40% increase solely for landscaping. But there’s no question that California has some serious water issues to face.

Fourteen million more people could each be using 232 gallons a day by 2030 at the current pace.

Taken as a whole, it’s just more proof that this market will be buoyant for a long time.

Remember, most of these water stocks are small caps. For now, that is.

Since October 2004, I’ve recommended a total of 5 water stocks. Here are the gains in those stocks since my recommendation:

Water Stock #1: +43%
Water Stock #2: +6%
Water Stock #3: +44%
Water Stock #4: +65% (acquired by GE)
Water Stock #5: +25%

My favorite water stock, Water Stock #1, just made a fresh record high today.

Like I said, these stocks, by market capitalization comparison, are very small. My #1 water stock trades at a market cap of just $250 million. By I think this baby is worth at least a billion dollars in the next few years.

If sitting on a 43% gain, it’s not too late to buy this one.

It’s going higher. Mark my words.

-Phantom Trader

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