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A Deeper Look At Water Investments, And How To Profit From Them

Posted By Dick Sterling
December 20, 2013

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I've been bullish on water investments for some time now, but the big challenge has always been this: There's a very limited supply of pure-play water stocks. This has made it difficult for retail investors to participate, notwithstanding the water ETF's which have begun trading over the past roughly five years --- including Guggenheim S&P Global Water (CGW), First Trust ISE Water (FIW), and Powershares (PIO and PHO). They've all doubled. But they're too general for my purposes.

These 10 Water Stocks Could Generate Eye-Popping Gains in 2014...

In my previous posts (here and here), I gave readers some general background on water investing, but I've been meaning to fill in the gaps with a more in-depth resource.

Even with the lack of pure-play water stocks, there are several ways for water investors to profit --- and we'll discuss those shortly. But first let me explain my perspective: water issues are driven primarily by agriculture, which in turn is driven by economic growth.

As China, India, and the developing world industrialize, the first big growth area is (and should continue to be) agriculture. More food is required as incomes grow (I discuss this in greater detail in my product Mastering the Bubble). And since farms require large quantities of water as an input for both livestock and crops, it follows that I'm expecting water demand to grow as the world's economies expand. This is a big-picture investment theme, which should really pick up steam in the coming decade.

But there's another factor to consider. It's oil --- and the fracking explosion which has sent domestic production soaring. Each fracked horizontal well uses 3 to 5 million gallons of water as part of the process (this number can vary). To meet this demand, water is often trucked or piped in. Once the water is used, it's contaminated and needs to be disposed of, or reused. Both options are expensive --- disposing of "dirty" water can mean trucking the water for dozens or hundreds of miles. This increases the attractiveness of "reuse" through desalination/purification --- which in turn should boost demand for new technologies and lead to greater efficiencies.

And these efficiencies in water investments are already happening: RO membranes used to make up around 35 to 40 percent of the cost of a desalination operation --- but now it has been driven down to about 10 percent.

The benefits from these efficiencies should cascade into other industries, including the "toilet to tap" water-reuse infrastructures which are now being looked at by more municipalities.

So agriculture and horizontal-fracking are two major reasons you'll want to position yourself in some kind of water investment, preferably this year. The pace of horizontal multi-stage fracking has already ramped up domestically, and is now going global. The agricultural sector has also been skyrocketing during the past decade. Neither Ag nor Oil show any sign of slowing drastically (again, if you haven't purchased Mastering the Bubble, you need to do so).

And while it's true that other inputs than water can be used for fracking (CO2 as one example), there is little doubt that water will remain an essential component of modern shale oil & gas production for years to come.

And what about other water investments --- such as in infrastructure? It's true that civil governments are already pouring billions into upgrading existing water delivery infrastructures, and many large businesses will benefit --- but the lion's share of profits will go to engineering firms, massive conglomerates, consulting outfits, and pipe/pump/valve manufacturers --- which are not my focus in this article.

My areas of focus for water investing (at least in this article) are primarily directed to two broad areas: drip/micro irrigation, and water purification (including all aspects of filtration and reuse technologies).

Fracking should drive demand for "reuse" and "desal" technologies, and I expect (within the decade) to see dozens of publicly-traded water stocks which focus on these niches. Right now, desal is primarily through reverse osmosis, an established technology which has achieved major efficiencies over the decades. But there are other desal technologies which, with investment, may drive costs even lower.

On the "reuse" side, again we are dealing with filtration concepts including reverse osmosis and other "old" technologies. As billions of dollars continue to get spent on fracking, a portion of those funds will be diverted to water businesses which specialize in new "reuse" and/or "desal" technologies, resulting in an improved array of water investments coming to market.

I also see great upside in niche agricultural equipment manufacturers which help reduce on-farm water consumption. New irrigation technologies are advancing, including systems which water the roots of plants right at the ground level, next to the root. Irrigation pipes controlled through sensors and computer systems, measuring moisture levels and determining exact water distribution requirements. Or newer systems, which bury the irrigation system underground, in order to decrease evaporation and use even less water.

I've put together a brief list of water stocks, and have tried to include as many pure-play (or close to it) water stocks as I can, and have purposely left out some of the corporate behemoths such as GE and Dow Chemical which provide very limited exposure as water investments. I've also been arbitrary in that I've avoided including some companies which for a number of reasons may be unattractive including any of the following: they are extremely illiquid; trade in a difficult foreign market; are impossible-to-buy nanocaps; are only indirectly linked to the water markets; etc. Also remember that I don't endorse all these stocks, they are simply listed for your reference.

Select publicly-traded water stocks
*Artesian Resources CorporationARTNAWater utility
*XylemXYLWater infrastructure company
*SJW CorpSJWWater utility
*Cadiz IncCDZIWater rights
*Lindsay CorporationLNNAgricultural irrigation systems
*Aegion Corp.AEGNCorrosion protection for pipes
*American Water WorksAWKWater and wastewater services
*Aqua America IncWTRWater and wastewater services
*Calgon Carbon CorpCCCWater filtration
*California Water Services GroupCWTWater utility
*Connecticut Water Service IncCTWSWater utility
*Hawkins IncHWKNWater treatment chemicals
*Hyflux LtdHYFXFWater treatment
*Kurita Water IndustriesKTWIFWater treatment
*Layne ChristensenLAYNWater management services
*Middlesex Water CompanyMSEXWater utility
*Severn TrentSVTRFWater treatment
*Suez EnvironmentSZEVFWater treatment
*United Utilities GroupUUGRYWater utility
*York Water CompanyYORWWater utility
*Pure Cycle CorporationPCYOWater treatment
*Veolia EnvironmentVEWater treatment
*GLVLVGAFWater treatment
*H2O InnovationHEOWater treatment
*Ashland IncASHWater treatment
*American States WaterAWRWater utility
*Badger MeterBMIWater meters
*Itron IncITRIWater meters
*Mueller Water ProductsMWAWater pipes/valves
*Watts Water TechnologiesWTSWater valves
*Idex CorpIEXWater pumps/meters
*Consolidated Water CoCWCOWater utility
*Flowserve CorpFLSWater pumps/valves
*SABESPSBSWater utility
*Tetra TechTTEKWater engineering
*Energy Recovery IncERIIWater energy reuse
*Toray IndustriesTRYIFWater filtration
*Northwest Pipe CompanyNWPXWater pipes
*Gorman RuppGRCWater pumps
*Halosource IncHLOUFWater treatment
*Enviro Voraxial TechnologyEVTNWater treatment
*Hydro InternationalHYDWastewater management
*Waterlogic PLCWTLWater dispensers
*Amiad Water SystemsAFSWater filtration
*Mycelx TechnologiesMYXWater treatment
*Porvair PLCPRVWater filtration
*United EnvirotechUEDVFWastewater treatment
*Primo Water CorpPRMWWater dispensers
*BWT AGBWT.VIWater treatment
*Int'l WaterGuardIWG.VWater treatment
*Clearford IndustriesCLI.VWater treatment
*Aqua Pure VenturesAQE.VWater treatment
*Seair IncSDS.VWater treatment
*JG BoswellBWELWater rights/ag
*Pico HoldingsPICOWater rights/ag
*Limoneira CompanyLMNRWater rights/ag
*Two Rivers CompanyTURVWater rights/ag
*EcolabECLWater treatment
*KemiraKMRAFWater treatment
*Thai Tap WaterTTAPYWater utility
*Modern Water PLCMWATFWater monitoring/filtration
*Dee Valley GroupDVW.LWater utility
*Torrington WaterTORWWater utility
*Pennon GroupPEGRFWater utility
*Manila Water CompanyMWTCYWater utility
*Rexnord CorporationRXNWater meters

These are just a handful of water stocks which I've put together, as a way for investors a way to ride the water investing uptrend. But before you pull the trigger and buy any of them, you should purchase my product Keys to the Investing Universe. It's like a set of glasses which allows you to see the world of investments from a new perspective, giving you precious (and profitable) insights which few others have. I highly recommend you place your order now --- there is no time like the present to begin generating outstanding returns.

Posted by: Dick Sterling, Editor   contact here

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