Water stocks—the investment wave of the future?
They just might be. Water is one of the world’s most abundant resources, spanning 70 percent of the globe. But it’s also the most precious; only 2 percent of the world’s water is fresh water.
And that’s what humans thrive on. As population growth soars—and water is used in all aspects of life, acting as a vital part of industry—parts of the world don’t have enough fresh water to support growth; even here in the U.S., we are experiencing water shortages.
And as a result, countries facing the biggest threat to water supply—places like India and China—are spending boatloads of money on infrastructure to maximize water usage and divert threats to economic growth and political stability.
Even granddaddy’s gold and boom in the oil industry are proving less resilient up against shares of water companies.
The gold-equities index of 54 securities dropped off about one-third this year as bullion reached a two-year low, reeling off slow growth from China, Bloomberg reports. And oil, tracked by the oil gauge and nearly 120 oil companies, has dropped 2.5 percent this year, stemming from the International Energy Agency forecast that global oil demand will be reduced for the third consecutive month.
Meanwhile, the S&P Global Water Index, tracking 50 companies, has gained 162 percent since Nov. 30, 2001, according to Bloomberg, compared with 135 percent in the S&P Global Oil Index and just 37 percent in the S&P/TSX Global Gold Sector Index. The water-business gauge is up 5.5 percent this year alone.
From Bloomberg:
“We can’t live without water, we can live without gold,” said Simon Gottelier, a fund manager in London at Impax Asset Management Group Plc (IPX), which manages $3.2 billion of assets including a water fund. “As a sector, it has a unique set of long-term drivers based around the need for new investments, predominantly in emerging markets. Water is about as attractive as it gets.”
India’s Water Crisis
India, which faces perhaps more water problems than anyone as the world’s second-most populous nation, will be investing in more water management solutions than ever before—doubling down on its efforts to create better sewage treatment, irrigation, and recycling in a five year plan.
The federal and state governments will invest 1.1 trillion rupees ($20 billion) to improve the country’s water supply—a country that supports 1.2 billion people but only treats 20 percent of its sewage, according to Bloomberg.
At a conference, President Pranab Mukherjee said that of the water supply the nation does have, roughly 80 percent is applied to farming and 10 percent to factories.
India’s demand for clean, fresh water is forecast to grow by at least 50 percent in the next ten to twelve years and surpass supply by more than double by 2030. This would make it the most water-stressed of all nations, indicating an impending crisis if matters aren’t addressed right now.
Looking at India, you can see how precious water is to a nation’s industrial and economic success. Things have gotten so bad for the world’s second largest sugar producer that recently drought has decimated the two states of Maharashtra and Karnataka, where nearly half of India’s sugar production occurs
Indian farmers were left in despair. In 2012, nearly 1,000 farmers committed suicide in that region of India.
Even worse, investors are backing off because of this lack of water. India’s economy is growing slower than it has in the past ten years. Manufacturers are trying to cut back on the use of water, but it is so critical that no company is in a comfortable position.
And the same problem is possible closer to home. The fracking boom in the states has driven the recent North American oil success, but without water there would be no fracking. Millions of gallons of water are needed to successfully frack a single well.
Industries have used water as if it could never run out. But those same luxuries can’t be afforded anymore. And this means companies looking to pump water back into the system—be it through recycling, desalination, or a number of other methods—have success already set up for them.
Utility Companies
If you’re thinking water just might be a practical investment after all, but you’re not too sure where to turn—your local utility company could be a good place to start.
If you look at any five-year period during the last 25 years, water utilities outperform all other leading industry groups on a total return basis. All of them.
And though only about 10 percent are publicly traded right now, local utilities are currently facing vast expenditures to infrastructure.
There are serious problems cropping up. The U.S. has its share: collapsing storm sewers, storm and water runoff, and a roughly 20 percent water loss from leaking drinking water systems—problems that must be resolved.
There are 800,000 miles of water pipes and 500,000 miles of sewer pipes sprawled across the country. They’re generally supposed to be good for fifty years, but research shows that many of these same pipes are nearing that half century mark. It’s inevitable that they’ll have to be replaced soon.
In order to get the funding these major overhauls need, utility companies are going to go public. It’s expected that in the next ten years, investor-owned water companies will rise on the global scale by 500 percent.
Water Companies
And thankfully, there are companies around the world that are realizing how precious water is as a resource and making the right changes.
Suez Environment (OTC:SZEVF), Europe’s third-largest water company by market value, contracted a whole slew of projects with India—$54 million worth. The company will build and operate water treatment units in the cities of New Delhi and Bangalore.
Thermax Ltd. (NSE:THERMAX), which produces water-recycling equipment, will work with projects to meet the need for new technology in water treatment, an ever growing importance as governments look to improve sewage facilities.
VA Tech Wabag Ltd. (NSE:WABAG), India’s biggest builder of water-treatment plants, plans to purchase two companies in Europe that will aid in its advancements in technology and help it reach new markets.
Revenues are expected to boost exponentially for Thermax and VA Tech on these latest moves.
In the U.S., American States Water (NYSE:AWR), one utility company that is already public, has shown excellent dividends in its history; despite a tough 2012, it has bounced back in 2013.
No matter how you slice it, water is one commodity the world will never be able to live without. It’s not only a safe bet, but it’s a prosperous one.
It’s as investment guru Jim Rogers told reporters last week:
“If you can find ways to invest in water, you will be extremely rich because we do have a serious water problem in many parts of the world like India, China, the southwestern part of the U.S., and west of the Red Sea.”
It’s not gold. It’s not oil. It’s water.
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