The 'Holy Grail' of Water Profits
UPDATE: Check out our new water investment primer on Energy and Capital.
With Earth Day this week, the green drive is a bit more pressing than usual.
Major networks are hosting green-themed weeks, celebrities are out in force, and seemingly hundreds of dot-orgs are blasting the airwaves promoting their campaigns.
And while we'll hear the annual calls for cleaner air and planting more trees, a new theme is gaining prominence this year.
Yes, it seems water is everywhere except where we need it to be, these days. It's generating headlines, causing conflicts, and making savvy investors hefty returns along the way.
But don't take my word for it. Check out the performance of several water ETFs over the last three months.
Granted, this group has been roughed up by the recession like most others. But economic easing and renewed interest in the topic has led to a 33% run in the last few weeks.
I thought we'd take today to digest some recent water news and look at a few possible investment angles.
Water News I Already Told You
Recent water news is often old stories happening in new places or with new twists. I've been telling you for some time that serious water problems were looming, so evidence of major shortages now should be no surprise — where they happen and how to profit might be.
Consider my words back in August 2007:
We are at the crux of disaster — a crisis so big that it already affects well over one billion people and will soon affect everyone on earth.
The calamity we face is a serious lack of fresh water.
In that article, subtitled "A Steady Stream of Water Profits," I used then-recent water headlines to illustrate my point:
Las Vegas Growth Depends on Dwindling Water Supply
Seawater Could Help Solve Florida Water Woes
Iraq Calls for Water Treaty to Avert Crisis
El Paso's 15-year Wait for Desalination Plant Is Over
It's been a full 18 months since then. . .
Las Vegas is still dependent on water for growth.
Florida (and a large part of the Southeast) is still facing drought conditions.
There are abundant water problems in the Middle East.
And desalination is increasingly being looked to as a major solution.
Now, take a look at water headlines from the past few weeks:
California's drought raises rural-urban tensions over water
Florida Drought Watch: Water levels dropping
Palestinians face dire water shortage: World Bank
A Rising Tide for New Desalinated Water Technologies
You should see a striking resemblance in the contents of the news, even though much time has passed.
And that's my point: coverage of the water issue is cyclical, but the problem is constant. . .
So are the profits you can make.
How to Profit from Water
Like energy, water is becoming more valuable because of scarcity. Also like energy, hundreds of billions are being spent to combat looming supply shortfalls.
And that's what is driving investor profits.
Investing in water is even being looked to as a tool to combat recession. The recently passed stimulus had a $6 billion water portion.
It's only a drop in the bucket, but much larger international commitments will undoubtedly follow.
That's the beautiful thing about investing in water — the market has completely different fundamentals than other industries because demand constantly rises while supply remains relatively constant.
Improving the management of existing resources is one way to tackle the problem and turn a profit at the same time. This falls mainly in the category of investing in water infrastructure.
Knowing the ins and outs of the industry has already netted readers of the Alternative Energy Speculator four double-digit winners in the sector.
And an entire section of our portfolio is dedicated only to water stocks. As of this morning, four of the six stocks in that section were up, two of them in double digits.
Is it any surprise? Unlike with oil, demand for water does not decline during a recession.
So, despite credit tightening elsewhere, Reuters recently reported that "operating budgets for municipal utilities, which make up 85 percent of the water utility market, have remained intact. That means water treatment companies such as Nalco Holding Co and filtration companies like Calgon Carbon Corp should have a steady stream of orders for chemicals and components needed to keep water clean and plants functioning."
Reuters was a bit late on the Calgon (NYSE: CCC) coverage. Alternative Energy Speculator readers closed that stock for a 16% gain over a week ago.
Of course, we've played several other water infrastructure companies for profit. . . and we'll continue to.
But as water shortages become particularly acute — and they will — the big money is going to made in companies that can alter the supply picture, rather than merely manage it.
What I'm talking about is actually being able to increase freshwater supply. And the only way to do that is through desalination, what Reuters called "the Holy Grail in the quest to replace dwindling freshwater drinking supplies."
This is where the most lucrative water profits will be made.
In fact, I told new readers of Alternative Energy Speculator about my favorite desalination play just the other day. Look how it's performed since then:
Those that followed my water investment advice have gone on a 25% two-day adventure. But this stock's run is just getting started. I think it could easily triple as water issues start coming to a head.
Call it like you see it,
P.S. You can now follow me on Twitter at http://twitter.com/nickchodge, where I'll be providing real-time market updates and my thoughts on the ever-changing landscape of alternative energy markets.
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