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