The 10 Best Stocks for Blue Gold

For the past hundred years, oil has been the kingmaker among nations; whoever had it grew wealthy. The kingmaker of the next hundred years will be water. Read on for my top 10 picks to cash in on the commodity king of the 21st century.

Better than gold: blue gold 
With 70% of the Earth’s surface covered in water, water is not a scarce resource. However, clean water is scarce, making up less than 3% of the world’s water supply. Consider these facts:

  • More than 1 billion people do not have access to enough safe freshwater to ensure basic health.
  • 2.5 billion people live without basic water sanitation.
  • In developing nations, 70% of industrial waste is dumped, untreated, into water supplies.

The problem is growing. According to the United Nations, global water consumption grew at twice the population growth rate over the past hundred years.  Closer to home, America is suffering from an aging water infrastructure. According to the American Society for Civil Engineers, “America’s drinking water systems face an annual shortfall of $11 billion to replace aging facilities that are near the end of their useful life. This does not account for growth in the demand for drinking water over the next 20 years.” As the saying goes, though, every problem is an opportunity in disguise.

Water winners
As demand for water rises with population growth, there is a huge opportunity for companies that can efficiently and effectively deliver water to consumers -- be they people, farms, or factories. Here are my top 10 picks for you to ride the wave of rising water demand.

Company

Reason

Heckmann (NYSE: HEK  ) Run by Richard Heckmann, a serial entrepreneur with a track record of success in the water industry. Specifically, he took U.S. Filter from $17 million in revenue in 1990 to $5 billion nine years later before selling to Vivendi. The firm owns China Water & Drinks, a producer of bottled water products in China, and Heckmann Water Resources, a water pipeline in the Haynesville Shale that disposes of saltwater and fracking fluids generated by oil and gas operations.
Sabesp (NYSE: SBS  ) Brazil’s largest provider of water and sewage service focusing on Sao Paolo, the most populous and wealthy of Brazil’s states. Its water serves 60% of the state’s urban population and is a natural monopoly in its markets. Growth for the business will come from population expansion, reaching new markets, and building projects. Pays a dividend of 4.3%.
Mueller Water Products (NYSE: MWA  ) Manufactures water infrastructure, flow control, and piping products used in water distribution and water treatment facilities. The U.S. water infrastructure is reaching its age limit and Mueller Water will benefit as it’s rebuilt.
Energy Recovery (Nasdaq: ERII  ) Manufactures energy recovery devices and pumps primarily for desalination plants, greatly reducing a plant’s energy needs.
Nalco (NYSE: NLC  ) Produces specialized chemical programs for water treatment, pollution control, energy conservation, and oil production, among other industrial processes.
Veolia Environnement (NYSE: VE  ) The largest water services company in the world, well-positioned to benefit from the enormous amount of money that will pour into the water industry.
Consolidated Water Co (Nasdaq: CWCO  ) Runs desalination plants and water distribution systems in the Cayman Islands, Bahamas, Belize, the British Virgin Islands, and Bermuda.
Suez Environment (OTC: SZEVF.PK) Second-largest water services company in the world.  It’s involved in collecting, treating, and distributing drinking water.
PICO (Nasdaq: PICO  ) Owns water resources and water storage operations in the U.S. and Europe. Strong, value-oriented management team.
Watts Water Technologies (NYSE: WTS  ) Manufactures water safety and flow control products primarily for the water quality, water safety, water conservation, and flow control markets.

Each of these 10 companies should do well as they ride the wave of increasing water demand. In my mind, though, one company stands above the rest.

The best stock at today's prices
Of the 10, my favorite is Nalco, the largest water treatment company in the world. The company is remarkably positioned to benefit from increased water demand from global population growth. At the same time, the company has a large business producing water and chemical systems for the energy market, which will also do well as oil prices rise. While the company has a high debt level, management is focused on paying it down with the ample free cash flow the company generates.

Follow these water stars
If you like any of these stocks, click on MyWatchlist.com, our free, personalized stock-tracking service. You can add any stock you like and you'll get access to our Foolish content on every stock on your list to stay up-to-date on what's going on.

Do you have a water stock that the market hasn't appreciated yet? Let me know in the comments below.

Dan Dzombak can be found on his Twitter account: @DanDzombak. He does not own shares of any of the companies mentioned in this article. Mueller Water is a Motley Fool Hidden Gems recommendation. Sabesp is a Motley Fool Income Investor pick. The Fool owns shares of Heckmann and Veolia Environnement. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (27)

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 April 19, 2011, at 12:13 PM, RegLeCrisp wrote:

    Water is no joke, we can live without gold, oil and, to an extent, cubic zurconium, but water? We all seem to need this stuff. And there are more and more of us. And ocean water tastes funny. VE is a bargain these days, SBS was until a few months ago. Have a look at GRC, they move water very well, too. I own these as well as FLS and believe them to be vital to any long-term portfolio, even better if the portfolio is of the 'fire and forget' type. Owning these won't keep you up at night.

  • Report this Comment On April 19, 2011, at 4:57 PM, TMFDanDzombak wrote:

    @RegLeCrisp Thanks

  • Report this Comment On April 20, 2011, at 11:46 AM, RegLeCrisp wrote:

    I believe the water resource theme will play out to a divisive and controversial end (or at least middle) in the not too distant future*. It's both a stark revelation and a little bit frightening that some of the nations richest and most powerful families (i.e., the Bush's {what's the plural of 'Bush'?} etc.) are accumulating water and agriculture resources. Not stocks, mind you, but hard assets. It's one thing to control oil, timber, gold and the like, but the control of vital resources evokes a much more sinister perception. Don't get me wrong, I see it simply as a wise investment

    *I'm not predicting a dystopian, water deprived future where G W Bush the 7th will be dispensing water to the parched masses from atop a gold-plated water tower, but if desalinisation initiatives don't keep up with demand there could be some very disturbing Soylent Green-type scenarios.

    Or maybe I have it all wrong. Either way, it's a compelling topic and I hope you keep going with it, despite the apparent lack of traction.

  • Report this Comment On April 21, 2011, at 5:18 PM, mhy729 wrote:

    This sector makes for a most compelling long-term investment. Thanks for the article and comments.

  • Report this Comment On April 27, 2011, at 7:49 PM, dillon53 wrote:

    I more than agree with all comments. Drinkable water is the most precious commodity we can invest in.

  • Report this Comment On May 01, 2011, at 11:46 AM, FrBo wrote:

    quote :"'m not predicting a dystopian, water deprived future where G W Bush the 7th" ...sorry friend no GW Bush 7th at all in your future :)

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