Will You Benefit if California Addresses its Most Pressing Needs?

There isn't a single locality in California that isn't suffering from some level of drought. That's had an impact on industries as far ranging as electric utilities and farming. There are some things that can be done to help alleviate the pain, however, and it highlights potential investment opportunities.

Use less water!
It would be nice if the drought in California were simply a matter of using less water. But the sad fact is that the problem stems from a lack of rain. There's little that humans can do about that. However, that doesn't mean ignoring consumption is the answer, either.

For example, the Pacific Institute recently put out a research report that said conservation efforts could result in water savings of 30% from the residential sector and as much as 70% from the farm sector. Those are huge savings and some of the suggested steps are relatively easy, like farms shifting to more efficient irrigation techniques.

That is where water utilities come in. California Water Service (NYSE: CWT  ) serves around 470,000 customers in more than 80 California communities. It's been encouraging customers to conserve water. But that isn't a new phenomena, California Water has been asking customers to reduce their water use for years. It's spent over $30 million to cut consumption of the very product it sells. Although it hasn't achieved the 30% mark, California Water claims water use has fallen, "...15% throughout the company's service territories since 2007."

How do you help customers use less water? You make sure the right tools are available, like water meters from Badger Meter (NYSE: BMI  ) and Itron (NASDAQ: ITRI  ) . Itron estimates that only 50% or so of U.S. households have smart meters installed. So only half the country has the tools it needs to combat utility usage. And according to the San Jose Mercury News, there are hundreds of thousands of California homes and businesses without smart water meters.

Itron's water business made up 28% of its revenues in 2013 (electricity accounted for 43% and gas 29%). Water is a much bigger contributor at Badger Meter, where municipal water meter sales made up nearly 70% of the company's top line in 2013. Industrial water meters accounted for 27% with "specialty" products accounting for the rest.

Making water
Helping customers better track their own use is an important step in the process of conserving water. While that helps offset the impact of droughts, it does little to stop them. While we still don't know how to make it rain, we do know how to turn non-potable water into drinking water.

(Source: James Grellier, via Wikimedia Commons)

On that front, Consolidated Water (NASDAQ: CWCO  ) is an expert. The company uses reverse osmosis desalination to turn seawater, which makes up 97% of the world's water, into drinkable water. Consolidated's expertise comes from operating 13 desalination plants in the Caribbean.

It also has two projects on tap that could materially alter its business. One in Asia and the other in Mexico. The Rosarito, Mexico, project is expected to provide water to Tijuana and San Diego. While there may be a shortage of rain, there's no shortage of seawater. If Consolidated can prove its technology in, or at least near, the United States, there could be expansion opportunities driven by California's current water shortfalls.

The bright side?
The drought in California is a dramatic reminder that we can only control just so much in the world. However, as an investor, you need to look to the future. Human ingenuity has time and again dealt with uncontrollable nature. Badger and Itron are two companies that can help us do a better job of controlling the water we use, while Consolidated actually makes water we can use out of the plentiful supplies of water we now can't use. The drought is horrible, but you might find investing in the solution is a good idea.

This is all part of the next round of interconnectivity...
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.


Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

DocumentId: 2902855, ~/Articles/ArticleHandler.aspx, 8/2/2014 4:49:12 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 16,493.37 -69.93 -0.42%
S&P 500 1,925.15 -5.52 -0.29%
NASD 4,352.64 -17.13 -0.39%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/1/2014 4:01 PM
BMI $49.27 Down -0.63 -1.26%
Badger Meter, Inc. CAPS Rating: ***
CWCO $10.33 Down -0.06 -0.58%
Consolidated Water… CAPS Rating: ***
CWT $23.04 Up +0.27 +1.19%
California Water S… CAPS Rating: *****
ITRI $35.77 Down -0.21 -0.58%
Itron, Inc. CAPS Rating: ***

Advertisement