5 Companies for a Thirsty World

Despite our often silly demeanor, we take investing pretty seriously here at the Fool, and there can be no greater investment than one that makes this world a better place. That's why I'm proud of the Fool's yearly Foolanthropy drives, and this year's touches on a topic particularly important to me -- water security.

As my colleagues Alyce Lomax and Ilan Moscovitz explain in the Foolanthrophy 2012 announcement, hundreds of millions of people around the world lack access to reliable, clean water, costing them billions of wasted hours carrying it from far-off sources or suffering from illnesses brought on by unclean drinking water. It's a major issue, but one that has a solution. I ask you all to follow the preceding link to Alyce and Ilan's article and read about what you can do to help invest in a better future for millions.

And now, our regularly scheduled article
Around this time last year, I brought up the unique investing opportunities water provides, and now seems like a relevant time to revisit them.

Fortunately for the human side of things, water is not like most other commodities in that it can't be traded on a futures exchange somewhere, to have its cost bid up by speculators, nor is its supply tightly controlled by an OPEC-like cartel that can use it for political purposes. Unfortunately, that doesn't mean it's cheap and widely abundant, either.

Only about 2.5%  of the world's water is fresh water, the sort that life needs, and less than 1% of that amount is available for use. Worse still, global demand for water is increasing as emerging markets become more developed, and specific areas of scarcity are growing as more people move to large cities. A recent report  by the National Intelligence Council estimates that by 2030, global water requirements will be 40% higher than currently sustainable supplies, and more than half the world's population will live in areas with severe water stress.

How to invest
Fortunately, there are companies dedicated to bringing more water to more people, while wasting less of it. Even in the developed world, water loss through old, leaky pipes can range from 30% to 50%, and in poorer regions of the world, water is often carried from the source, so a good deal of it is lost from splashing and from quenching the thirst of the tired person carrying it. Similarly, a massive amount of water is wasted all over the world with inefficient irrigation methods such as flood irrigation, which is essentially what it sounds like.

The need to carry water more efficiently, as well as replace existing infrastructure as increasing urbanization puts it under more strain, makes piping companies such as Flowserve (NYSE: FLS  ) a good opportunity. Flowserve is in a particularly good position among its peers because it gets almost half of its sales from developing areas like Asia, Africa, and Latin America.

Irrigation equipment manufacturers Lindsay (NYSE: LNN  ) and Valmont Industries (NYSE: VMI  ) provide equipment that is vastly more efficient than traditional irrigation methods, on the order of 90% compared with less than 50%. Much of the developing world still uses traditional methods, so Lindsay and Valmont have a strong opportunity to grow as they help these regions use their water more efficiently.

Using water more efficiently is only half the battle, however. Desalination and sanitization can increase supplies of drinkable water. Unfortunately, Consolidated Water (NASDAQ: CWCO  ) is the only public desalination company, and it focuses purely on countries in the Caribbean, limiting its long-term growth opportunities. Calgon Carbon (NYSE: CCC  ) , however, is one of the world's largest manufacturers of water filtration and sanitization technology, deriving about half its revenue internationally and about 15% from emerging countries.

The Foolish bottom line
Water is sadly an increasingly scarce resource that too few people have reliable access to. Charities can go a long way to help, but these companies are well placed to provide better infrastructure and better technology to the areas that need it most. These are long-term opportunities, however, so I would recommend adding these companies to My Watchlist to stay up to date as they develop.

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Read/Post Comments (6) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 31, 2012, at 10:30 AM, dubtex wrote:

    Useful article, but its accuracy about CWCO falls short--the company does have most of its business focused on the Caribbean, but is expanding in other parts of the world. Additionally, CWCO management experience in developing and operating desalination facilities also offers opportunities for new business ventures. Yes, I own it.

  • Report this Comment On December 31, 2012, at 5:00 PM, TMFTheDoctor wrote:

    dubtex,

    Can you provide a source for that? I don't doubt you but I can't find any information in the latest 10-k or the company website about expanding outside the Caribbean, other than a vague mention that they plan to do so in the future.

  • Report this Comment On January 04, 2013, at 8:26 PM, SS1979 wrote:

    TMFTheDoctor,

    On page 15 of the latest 10-Q it discusses development by NSC (a partailly owned subsidiary - 50% currently but they have the right to buyout one of the other partners as well as a power of attorny to vote that partners shares immediately) of the potetial 100 million gallon per day plant at the Presidente Juarez Thermoelectric Plant in Rosarito Beach, Baja California, Mexico. Given the location I would not call this the Caribbean (it can provide water to San Diego across the US/Mexican border). That being said it is still at the pilot plant/feasability stage.

    Also, if you listen to the latest conference call (availale on the company's website at http://ir.cwco.com/events.cfm) or read the transcript (which is available at www.seekingalpha.com) they talk about their project in Indonesia (Bali region if I recall). Indonesia is a unique situation as there have been other private foreign companies promise delivery of clean water before only to fail to deliver, so effectively Consolidated will have to produce some water to prove that they can do what they say they can at the quality they had indicated. Once this is proven then they can likley sign some contracts with various resorts and municipalities that are not served by the government utility. If I'm not mistaken the initial plant was supposed to be in place by about year-end of 2012. Contracts could be signed in 2013 if the water is acceptable.

    They did mention they had potential projects elsewhere as well that they're looking at in Asia and the continental USA.

  • Report this Comment On January 04, 2013, at 8:29 PM, SS1979 wrote:

    From the companies Q3 press release (available at: http://www.marketwire.com/press-release/consolidated-water-c...

    "The Company's business development activities in Mexico and Asia are proceeding as expected. On August 31, 2012, our Mexican subsidiary, NSC Agua, and Doosan Heavy Industries and Construction Co. Ltd. (DHIC) extended a Memorandum of Understanding for 18 months from August 19, 2012, during which time DHIC will provide, install and operate a pilot plant and collect water quality data from the proposed feed water source at the Presidente Juarez Thermoelectric Plant in Rosarito Beach, Baja California, Mexico. Several of our Directors recently visited the site of the proposed 100 million gallon per day desalination plant to review first-hand the assembly of the pilot plant currently underway by DHIC personnel and NSC Agua's contractor. We expect the pilot plant to be operational in the next few weeks and are anxious to begin collecting valuable data that will assist in the design of the Rosarito Beach desalination plant. In Bali, Indonesia work is proceeding on the construction of the first phase of a 1.5 million gallon per day seawater desalination plant and distribution system in a rapidly-growing resort area on the island, and we expect this first phase to be operational early next year. This particular area of Bali continues to experience chronic water shortage problems while at the same time enjoying tremendous development growth. We believe this provides an excellent opportunity to use a business model that we have successfully employed in the Caribbean for almost 40 years to provide a total water solution for residents and businesses in this area of the World," concluded Mr. McTaggart

  • Report this Comment On January 05, 2013, at 3:12 PM, TMFTheDoctor wrote:

    SS1979,

    Thank you so much! This is really helpful and I will give you a shout out next time I mention CWCO. Send me an email if you wish to be mentioned by name etc.

  • Report this Comment On January 08, 2013, at 7:13 AM, bmc007 wrote:

    Yes, thanks very much for that very detailed info. I'm off to do some more digging before I part with my money - but it does sound promising. Dividend certainly looks to be solid and I like that it has increased at a steady pace over the years!

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