Blue Gold: Will Investing in Water Stocks Be the Next Big Trend?
The world's population is growing, and developing areas are demanding more clean water. Since 2001, the water sector has beaten the S&P 500 by 11% annually, according to Business Insider.
But how do you invest in the elusive concept of water? Business Insider gives 13 different ways on how to invest in blue gold, sourced from Jefferies:
1. Municipalities: "Key factors influencing municipal demand for water treatment equipment include population growth, consumption of potable water per capita, and the need to fix or replace aging infrastructure ... Leading companies in municipal water include Pall Corporation."
2. Water Treatment Chemicals: "Water treatment chemical companies include those who produce coagulants, flocculants, corrosion, and scale inhibitors, biocides, antifoaming agents, adsorbents, fluoridation agents to name a few ... Ashland and Ecolab are two leading companies."
3. Industrial: "The industrial segment of the water industry is expected to grow 10-20 percent in developing countries. But expect political constraints to limit price hikes for utilities that provide fresh water and wastewater disposal."
4. Pumps: "Leading companies include Flowserve, which manufactures pumps, seals and valves for water management end-markets, and Gorman-Rupp, a $300 million manufacturer of pumps, pumping stations, castings and control equipment."
5. Pipes: "The U.S. faces significant infrastructure investment requirements over the coming decades and Jefferies recommends long-term plays on infrastructure companies. Stock picks include Northwest Pipe."
6. Residential: "A.O. Smith is the leading manufacturer of water heaters in the residential and commercial space in the U.S. The residential water heater business is largely replacement. Pentair's principal products include residential and light commercial water pumps, filters, and filtration systems."
7. Filtration: "Leading companies include Pall, which supplies filtration, separation and purification technologies to the energy and water markets."
8. Distribution: "Investors will likely look for opportunities created by regulations that impact water distribution systems. The distribution segment of the water industry is expected to grow 10-15 percent in developing countries."
9. Irrigation: "Micro or drip-irrigation is the most promising market, making companies like Monsanto a good bet. Irrigation projects have the most impact in the Middle East and Northern Africa, which account for more than 53 percent of all water demand. South Asia is second with 36 percent of all water demand."
10. Valves: "The repair and replacement of water infrastructure in the developed world has provided an opportunity for water investors. The EPA expects 45 percent of existing infrastructure to be replaced by 2020 and this is expected to benefit companies involved in supplying valves. This could make Flowserve Corp, which manufactures valves for the water management market, a good long-term play."
11. Bottled Water: "Bottled water represents a high-profile market, with an estimated $96-$100 billion in sales in 2010. In the U.S. there is more demand for bottled water than there is for alcohol and coffee. Consumer and regulatory backlash, however, is a perpetual risk."
12. Desalination: "Improved cost effectiveness and booming demand for water in a number of arid regions are driving growth in desalination demand to rates well above the overall water sector. Desalination equipment companies that would make good stock picks include Pentair, Energy Recovery, and Flowserve."
13. Disinfection/Purification: "Emerging purification systems which can lessen energy costs and increase throughput have an extremely receptive audience in an energy constrained world. Growth rates in the disinfection/purification subsector are expected to be among the highest in the industry."
Business section: Investing ideas
Interested in getting involved in water investment? To dig deeper into the options, we list below the companies mentioned in this article.
Do you think increasing demand for water is inevitable? If so, which companies do you think are poised to benefit? (Click here to access free, interactive tools to analyze these ideas.)
1. AO Smith (NYS: AOS) : Engages in the manufacture and sale of water heating equipment to the residential and commercial markets in the United States and internationally. Market cap at $2.15B
2. Ashland (NYS: ASH) : Operates as a specialty chemicals company in the United States and internationally. Market cap at $4.94B
3. Ecolab (NYS: ECL) : Develops and markets products and services for the hospitality, foodservice, health care, and industrial markets primarily in the United States. Market cap at $14.43B
4. Energy Recovery: Engages in the development, manufacture, and sale of energy recovery devices and pumps primarily for use in seawater and brackish water desalination worldwide. Market cap at $0.13B
5. Flowserve (NYS: FLS) : Develops, manufactures, and sells precision engineered flow control equipment. Market cap at $6.69B
6. Gorman-Rupp: Designs, manufactures, and sells pumps and related fluid control products worldwide. Market cap at $703.37M
7. Monsanto (NYS: MON) : Provides agricultural products for farmers in the United States and internationally. Market cap at $41.64B
8. Northwest Pipe: Manufactures and markets large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, primarily related to drinking water systems. Market cap at $238.45M
9. Pall Corp.: Manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. Market cap at $7.28B
10. Pentair: Operates as a diversified industrial manufacturing company worldwide. Market cap at $3.85B
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford does not own any of the shares mentioned above.
At the time this article was published The Motley Fool owns shares of Ecolab. Motley Fool newsletter services have recommended creating a synthetic long position in Monsanto. 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.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.