The $400 Billion Source of Life
by Graham Summers
September 1, 2006
We need to talk about water.
In 2003, the UN filed a world report on water conditions. The report surveyed over 170 countries. It found that barring any developments in the sector, by 2050, 75% of the world’s population would suffer from water shortages.
At current population growth rates, by 2050 more than 18,000 cubic kilometers of the world’s water will be contaminated. That’s roughly the amount of water needed for nine years’ worth of worldwide irrigation needs at today’s rates. It already takes about 3,000 liters of water to feed a single person for a day.
Wait, it gets worse…
Currently, some two billion (1/3 of the earth’s population) are already experiencing a water shortage. Nearly half of the world’s population lacks the water necessary for proper hygiene. By some estimates there are 4 billion cases of diarrhoeal disease per year. Annually, there are one to two million deaths worldwide due to poor quality water, 90% of them coming from children under the age of five.
And don’t think that this only pertains developing countries either.
The U.S. water infrastructure is in bad shape. According to a 2003 report prompted by the Clean Water Act, it will take $276 billion to insure safe drinking water for the U.S. population over the next 20 years. The Environmental Protection Agency (EPA) is already offering grants worth a total of $19 million to clean up the U.S. waterways.
The market for the water sector is huge, having already passed $400 billion in annual revenues in 2000. And it is only going to get bigger as these water crises develop.
Publicly traded water companies are going to do very well in the years ahead. And there are a couple ways to play this trend. One way is to invest in large engineering companies with water segments. A few examples of this are Danaher (DHR) ITT (ITT), Siemans (SI), and General Electric (GE).
However, in all of these instances, the water segment makes up only a small percentage of the company’s annual revenues. So while extremely safe, you’re not going to get a whole lot of exposure to the sector.
Another alternative is to invest in the Powershares Water Resources ETF (PHO) PHO invests 80% of its assets in water stocks, both foreign and domestic. Heck, the fact that there is even a water ETF to begin with is a sign that the sector is becoming more and more popular.
PHO went public at the end of 2005, and peaked at $19.00. It has since fallen to $15.50 and has begun another uptrend. From a technical standpoint it looks like a great place to buy right now.
However, the stocks that really grab my attention are the ones that work in water infrastructure: the sector that will receive the biggest influx of capital during the U.S.’s improvement. I’m talking about companies like Layne Christensen (LAYN), PW Eagle (PWEI) and Mueller Water Products (MWA).
Check these out. There’s more on this subject to come…
Good trading
Graham |
