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Investing in Water Companies

A Profit Bridge to Somewhere

Written by Nick Hodge
Posted May 22, 2009

Update: Find the most rescent information for water investments here.

I've covered the water industry for some time, waiting for the problems that I knew were coming to rise to the surface and create serious profit opportunities for those in the know.

In the States, investors that get the big picture have seen this coming for a while. Those unfortunate enough to live in water-scarce areas—and they number in the billions—have been living with the stark water reality for decades, or longer.

But only in the past few years have water problems made headlines here. As our infrastructure teeters on the brink of collapse, you undoubtedly hear about one of the thousands of water main breaks that happen each and every day.

And you've probably also heard that, in addition to cash flow, California's water supply is also drying up. In fact, most of the Southwest and Southeast are in years-long droughts.

It all sounds very bad but, if you play it right, the results of this impending water crisis can be very good.

Worldly Water Wealth

That's mostly because we're a relatively wealthy, prosperous, developed nation, with a government that will ensure its citizens' access to freshwater. That may not be the case in other parts of the globe.

Take, for example, the $11.28 billion recently allocated to improving our water supply via the stimulus and the president's budget. Here's how that sum breaks down:

  • $3.9 billion for EPA Water Loan Programs

  • $6 billion for EPA Clean Water State Revolving Funds

  • $1.38 billion for the USDA Rural Water and Waste Disposal Program

The total sum is greater than the entire gross domestic product of Cambodia. And it's all going to alleviate water our problems.

Such is the benefit of living in a wealthy nation. The cumulative "they" won't let anything too bad happen. We're spoiled enough to know that Uncle Sam will always provide.

But there's more to it than just having the simple things readily available. . . water at the tap, a well-connected highway system. You can also profit from them.

Because Uncle Sam is just like, well, a rich uncle. He'll pay for you to get things done, but he won't do them himself.

This oft overlooked bridge is the key to easy profits.

A Bridge to Somewhere

The government is just providing the funding for these projects. Funding that you contributed to via taxes or from debt we've outsourced.

Those funds then go to companies that provide desired services. . . companies that you can invest in for profit. I'll call this the funding bridge. And most government projects have it.

It's why Northrup and Lockheed profit during wartime. And it's why biotechs soar when they get government funding or approval.

I'm sure even the "Bridge to Nowhere" would've had a profit bridge to somewhere.

This time around, over $11 billion is about to make its way onto the balance sheets of water companies. The key to profiting, and to taking double advantage of government spending, is to find out which companies are getting the boost.

This is one of the ways Alternative Energy Speculators get an edge on the cleantech market. If you haven't noticed, politicians from all sides are stumbling over themselves to give money to clean and green projects.

It's why we bought into Tetra Tech (NASDAQ: TTEK) at the end of March. As one of the preeminent environmental engineering firms, I knew Federal money was about to head their way.

Since then, TTEK has been awarded a $20 million water resource planning contract with the U.S. Army Corp of Engineers. And we're sitting on a 20% gain. We've also cashed out of several other water plays in the double-digit range.

But this funding bridge is just getting started. According to Recovery.gov, only $36.8 million of stimulus dollars have been spent. The Feds will be spending that money for the next four years.

And if you get into the right companies now, you could be profiting the entire time.

Companies are lining up to get the funding. And serious investors are lining up right behind them.

In fact, I've found one water company that the big boys are salivating over. It'll easily double as more attention is paid to water woes, and as more money is doled out to combat them.

Berkshire, T. Rowe Price, and more have already increased their positions, but there's still time to get in. Take a moment to read all about the water company that's got Buffett hot and bothered.

And keep an eye out for more on water opportunities in the future.

Call it like you see it,

Nick Hodge

Nick


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