Friday, March 16, 2012
Investing: Water - The Oil Of The Future?
Today Water is already a billion $ market, but supplying clear water & disposing of waste water could grow into a much bigger business. Therefore the topic water seems to be very interesting for investors with a long term horizon.
You can find a lot of ETFs on water, for instance the PowerShares Water Resources (New York Stock Exchange: PHO finance.yahoo) and the Guggenheim S&P Global Water Index (New York Stock Exchange: CGW finance.yahoo.com). But these ETFs have one disadvantage: They invest in a lot of companies which aren´t pure plays. For instance both invest in Veolia Enviroment (veolia.com). This is a French conglomerate with many business activities, including waste management, energy and transportation. Water is just a part of them. The Guggenheim ETF also invests around 10% in the German company Geberit, which claims to be the European market leader and global provider of sanitary technology, including installation systems for residential wall-hung toilets, as well as bath waste and overflows for bathtubs. I guess this is not really what a "water investor" wants.
But you can find "water" stocks which are "pure plays". There are some water stocks on the New York Stock Exchange which could benefit from the long term growth of the U.S. and the water problems in some regions. You can read an interesting survey about American water stocks on this page (seekingalpha.com).
American Water Works (New York Stock Exchange: AWK, market cap. $6 billion finance.yahoo.com) has the largest market capitalization of the U.S. water utilities ($6 billion). The company serves (in their own words) "approximately 15 million people in more than 30 states as well as parts of Canada" (amwater.com) AWK has had an impressive performance. The stock has almost doubled since end of 2009 and over-performed the S&P 500 in the last 12 months. But because of the growth of U.S. economy & population the rising trend could continue.
It seems that the stock of Aqua America (New York Stock Exchange: WTR, market cap. $3 billion finance.yahoo ) needs some patience. WTR missed the recent rally and now looks neclected. The company calls itself the "leading provider of drinking water and wastewater services for nearly 3 million people in 11 U.S. states" (aquaamerica.com). Maybe local regulations and the debt problems of the U.S. deliver some headwinds, but economic growth and a rising interest in the water topic could lead to a discovery of the stock.
Surprisingly the stocks of California Water (NASDAQ: CWT, market cap. just $ 760 million finance.yahoo ) have been a continuous bore on the market - in spite of the water scarcity. The company caters the regions California, Washington, New Mexico and Hawaii. Maybe the financial problems of California have frozen the stock. But analysts expect a continuously growing income. If the water problems in the South-West becomes even more severe, then the CWT could be discovered.
If you want to participate in global water issues you could try your luck with Suez Environnement Company SA (finance.yahoo). This is a French-based utility company which operates largely in the water treatment and waste management sectors, writes Wikipedia (wikipedia). Formerly an operating division of Suez, the company was spun out as a stand-alone entity as part of the merger to form GDF Suez on 22 July 2008. GDF Suez remains the largest shareholder of the company with a 35% stake. Suez Environnement shares are listed on the Euronext exchanges in Paris and Brussels. The company (suez-environnement) operates in Europe, North Africa, the Middle East and in Asia (China, Malaysia, Indonesia).
It looks like Suez started a rally in the beginning of the year. But at their home stock exchange they are traded in €. A weak € could weaken the performance for American and other investors who calculate in $. Anyway: Because it is Suez is my favorite in this industry.
Generally these stocks are utilities and may be too boring for traders. But the expected rising demand for water should be very positive for the industry.
Disclosure: I don`t have any positions in the mentioned stocks & ETFs.