"Blue Gold": The Ultimate Commodity

New Money Will Flood Water Stocks

Written by Brittany Stepniak
Posted September 19, 2013

We all know water is the ultimate commodity.

However, most investors haven't yet taken advantage of water as the ideal investment opportunity.

Sound too common to be lucrative?

Don't be fooled by the fact that 70% of the earth's surface is covered in water...

That doesn't account for the amount we actually have at our disposal for everyday use: 97% of earth's water is saltwater, leaving only 1% for human use and consumption.

And we've really been stretching that 1% pretty thin in the last few decades... 

Increases in agricultural uses and industrialization have led to dangerous water shortages in regions across the globe... Extreme drought conditions worldwide have resulted in farmers using more and more water in agriculture.

In addition to taking millions of lives prematurely in third-world countries, these global water shortages are quickly impacting industrialization projects and taking a toll on the average family budget.

The American Society of Civil Engineers has said that water infrastructure will cost at least $1 trillion in the U.S. alone. Meanwhile, the nation's drinking water and wastewater infrastructure is in poor shape. Demand for advanced systems to provide clean water is rising here, and everywhere. 

As the laws of supply and demand always state, when something becomes scarce, its value explodes.

Water is no exception. And as world population grows, water consumption will follow suit.

This is a pretty basic formula for all resources; however there are virtually zero variables when it comes to water, something vital to our survival.

The increasing price of water stocks over the past few years more explicitly reveals the impact of water consumption trends on water price trends.

Consumer trends regarding water follow a unique path...

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Water Price Trends: Today and Beyond

Since 2010, water prices have risen 25% in the U.S. And crumbling infrastructure in many states has residential water costs more than doubling in some areas.

The amount households pay for water is increasing faster than U.S. inflation and faster than costs are growing in any other utility sector... Electricity, gas, and telephone charges are lagging far behind this precious resource. Cable television and garbage collection costs run more closely to current water costs, but most folks' water bills still take the cake.

Now, while you may not be able to negotiate what you pay for water, you could make some of that money back by investing directly in water's raging bull market...

To see how these trends can affect the market, take a look at American States Water's (AWR) history for the past 23 years for which they've been offering dividend payments. This particular stock has an excellent dividend history, in lieu of a tough year in 2012. 


Why Invest?

People the world over, especially those of us living relatively comfortably in developed countries, tend to take water for granted. We naively overlook the water scarcity crisis.

The truth is we can't afford to overlook the facts:

  • 780 million people lack access to clean water.
  • 3.4 million people die annually from a water-related disease.
  • More people have a mobile phone than a toilet.
  • Every 21 seconds, a child dies from a water-related illness.
  • 443 million school days are lost each year due to water-related illness.
  • Lack of community involvement causes 50% of all water projects to fail.
  • People living in informal settlements (i.e. slums) often pay 5x to 10x more per liter of water than wealthy people living in the same city.

Economic water scarcity is an alarming issue caused by a lack of investment in water, or insufficient human capacity to satisfy the demand for water. Symptoms of economic water scarcity include a lack of infrastructure, with people often having to fetch water from rivers for domestic and agricultural uses. 

The good news is investment in safe drinking water and sanitation contributes to economic growth. For each $1 invested, the World Health Organization (WHO) estimates returns of $3-$34, depending on the region and technology.

As this issue gains attention and international focus, the water sector is poised make big waves with a strong ripple effect on the global economy at large. And once the world recognizes this humanitarian crisis for what it really is, progression has the potential to turn the industry into one of the most lucrative in history.

The imminent threat of this global water crisis has presented entrepreneurs and investors with a $500 billion opportunity...

Ways to Invest

Entrepreneurs with Vestergaard Frandsen have developed a handy little product know as the LifeStraw.

This unique tool was brilliantly designed to filter water for "prevention of common diarrheal disease; it can be carried around for easy access to safe and clean drinking water." The instant microbiological water purifier is advertised as being able to remove 99.999999% of waterborne bacteria, with the ability to filter up to 1000L of water.

Companies and products like Vestergaard Fransden are likely to explode in the months and years to come, as the water crisis spirals exponentially out of control.

Utility investing may very well mark the next biggest bull run of this generation, with water winning the race to the top.

If you're searching for the next emerging market, the answer is as clear as clean water...

I've already mentioned American States Water (NYSE: AWR), part of the S&P 500 Water Utilities Index.

Here are some a few popular stocks under other indexes:

  • Dow Jones U.S. Water Index: This index encompasses approximately 29 stocks, both national and international companies.

  • Palisades Water Index: Palisades Indexes LLC have indices designed for Exchange-Traded Funds (ETFs) "and for the structured or derivative product markets." Their mission statement is as follows: "Our aim is to create indexes where there are strong fundamentals and superior performance for investors. One of our specific services is to provide our clients with the knowledge and support of our industry experts. Our capabilities span to providing indexes calculated around the clock in many countries and in any currency for use as a benchmark."

  • ISE-B&S Water Index: There are over 35 water-related stocks in this index launched in January of 2006. The index is comprised of companies active in water distribution, water filtration, flow technology, and almost every other type of water solution.

  • Aqua America (NYSE: WTR): This company services 2.8 million residential customers and provides water to homes, offices, and industrial customers throughout 14 states. Throughout the past few years of economic hardship, Aqua America noted that there was essentially no decline in the demand for water. The only competition they have includes a handful of other water utility conglomerates, like American Water Works Company (AWK), and some privately held companies, like United Water and Utilities, Inc.

Another simple option if you're considering investing in water stocks is to do so through the PowerShares Global Water Fund (PIO).

This is another ETF that uses the Nasdaq OMX Global Water Index as a benchmark in order to track companies that are working on various products that help households, businesses, and industries conserve and purify their water supply.

The Future of Global Water Consumption... and How It Will Impact Your Investment

Right now, the water industry is already a $500 billion market, and it's only expected to go up from there, thanks to the numerous infrastructure projects necessary within the next two decades.

It is estimated that at least $662 billion will be required for water infrastructure rebuilding over the next 20 years. The EPA estimates that between 2009 and 2019, funding to address water infrastructure needs will likely fall short by as much as $263 billion or even more over the next 20 years as demand for water surges.

Such a shortfall is nothing to leap for joy over. But the underlying opportunity masked by this disaster is something that investors should be getting genuinely excited about. 

Perhaps the most exciting part is that we're talking about water, the most essential element on our planet. It's impossible for demand to cease for a commodity that's required at the most basic level of human life. Moreover, it's also an integral part of energy and modern-day technology...

From OilAndGasInvestments.com:

"In 2008 there were 25 billion barrels of water handled (by the oil and gas industry) in the U.S. — even at 60 cents a barrel it's a multibillion dollar business," says Jonathan Hoopes, President of GreenHunter Energy Inc. (AMEX: GRH).

"With the big growth in unconventional since then, it's likely another 5-6 billion barrels..." 

"Customers in the oil and gas industry are finding their way into the water industry," he told me in a recent interview.

"Two years ago customers didn't know what the water business meant. At some point they knew they would have to clean and re-use it, but didn't understand how to do it. Now we're watching it form as we speak. Customers are now starting to define what the water business will be. Before, it had no shape or form. Now we're seeing various companies put cost structure on the business; put costs on storage, treatment, transportation." 

Bottom line: If you have not yet found a place for water in your portfolio, now is the time to make it happen.

It's one of the few safe, sound, and secure long-term investment options that will guarantee returns in an otherwise volatile marketplace.

Today, tomorrow, and five hundred years from now... water is and will forever be a hot pick. 

Farewell for now,

Brittany Stepniak Signature

Brittany Stepniak

Brittany Stepniak is the Project Manager and Editor for the Outsider Club. Her “big picture” insights have helped guide thousands of investors towards achieving and maintaining personal and financial liberties while pursuing their individual dreams in lieu of all the modern-day chaos.

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