Dirty Water, Clean Profits

by Eric J. Fry

Dirty water is a worldwide tragedy. Clean water is a worldwide investment opportunity.

Half of all hospital beds in the world are occupied by someone suffering from a water-related illness. In the developing nations, 80% of all diseases stem from consumption of and exposure to, unsafe water.

There is no shortage of water on this big orb of ours, but there is an acute shortage of clean water…and the human toll is alarming.

Contaminated water is deadlier than any other evil on Earth; deadlier than AIDS; deadlier than cancer; deadlier than contagious diseases; deadlier even than world wars. During the Second World War, one soldier died every five seconds. Today, one human being dies every 3.5 seconds from drinking contaminated water.

The scale of this ongoing international tragedy boggles the mind. More than a third of the earth’s population lacks access to effective sanitation, which is why more than a billion people contract water-related diseases every year.

The UN estimates that in less than 25 years, if present water consumption trends continue, five billion people will be living in areas where it will be impossible – or nearly impossible – to meet basic water needs for sanitation, cooking and drinking. But present trends simply cannot continue. The human toll is already horrifying, and the economic toll is rising rapidly.

Although 70% of the world’s surface is covered by water, only 2.5% of it is potable, and most of that is trapped in the polar ice caps. According to the World Health Organization, less than 1% of the world’s freshwater, or 0.007% of all the water on Earth, is readily available for human consumption. Pollution and water-supply abuse are rapidly reducing these precious supplies.

The problem is; there’s no substitute for fresh water.

“Water is the most basic and necessary commodity,” observes Summit Global Management, “and it is the only element in the world that has no substitute at any price. One can substitute wheat for oats, coal for natural gas, corn oil for soybean oil and hydro-electricity for fossil-fuel generated power, but…water has no substitute regardless of price, the only element in the world of which this is true: This most fundamental of facts is another key to the inexorable and intractable demand for water that will not abate with time.”

Without question, therefore, clean water is the Earth’s most precious resource. But this essential truth has not prevented decades of water mismanagement. Throughout the world, clean water is underappreciated and woefully abused…except by the billions of people who struggle to find it each day…or die trying. Only 20% of the world’s population currently enjoys the benefits of running water. The other 80% have to find it whenever and wherever they can. In some parts of the world, people spend as much as six hours a day fetching water.

No country has a more acute water problem than China.

With over a fifth of the world’s total population sharing only 7% of the fresh water on earth, it is no wonder China has been listed by the United Nations as one of the 13 countries with the lowest water per capita in the world. But scarcity is just the beginning of China’s water problems. Most of the country’s waters are so polluted they cannot support aquatic life, much less human life.

Half of China’s population consumes drinking water contaminated with animal and human waste that exceeds permissible levels, which is why China has the highest liver and stomach cancer death rates in the world. Clean water, therefore, is the ultimate China play. But clean water is also the ultimate world play. No economy can flourish for long by polluting the water that sustains its workforce.

Now that unclean water has become a serious economic issue in many developing nations, government agencies and private corporations worldwide are springing into action. Indeed, every populous country in the world will be spending billions of dollars – if not trillions – over the next 20 years to install and upgrade its water and wastewater infrastructure. The United States, alone, will spend $1 trillion over the next two decades to upgrade its decrepit water infrastructure.

Unlike other commodities, the demand for water is unwavering and certain. What’s more, water does not suffer the threat of the discovery of an “alternative” source. No “alternative” water will present itself in the future. Clearly, therefore, investing in water is an investment in a certain future.

That’s why companies like General Electric are getting involved in a big way. GE has gone on a shopping spree for water-focused companies, in the process amassing an impressive portfolio of clean water products and technologies. These water operations are part of GE’s new push into environmentally friendly product offerings. Sales of GE’s “green” products last year jumped 63% to $10 billion, while orders doubled.

Clearly, there is a lot of money to be made selling “green” products to an energy-hungry world, and GE will capture a large share. Unfortunately, from the standpoint of an individual investor, GE’s green products contribute less than 6% of the company’s revenues. Water products contribute less than 2%.

In other words, GE may do great things for the world’s water supply, but its stock might not do much for water-focused investors. Unfortunately, pure-plays on the global boom in water purification are few and far between, which is why many investors simply buy a U.S.-based proxy for the water sector, like Aqua America (NYSE: WTR) or the water-stock ETF, PHO.

But your editors here at The Rude Awakening believe that many of the best water-focused investments trade in out-of-the way, foreign markets. After a month-long research effort, conducted in cooperation with Christopher Mayer, editor of Capital and Crisis, we’ve located several compelling water stocks that trade overseas. We’ve completed our research and will be publishing our findings very soon.

In the meantime, however, we’d love to hear from the Rude faithful on this topic. To initiate our newest Rude Awakening “Group Research Project,” we would solicit the following:

A “pure-play” on water purification that trades anywhere in the world. The recommendation may be small-cap (but over $100 million) and may trade on a foreign exchange, or it may be a big-cap and trade here in the United States, but it must be a company that focuses on some facet of the water industry.

Fortune Magazine predicts: “Water promises to be to the 21st century what oil was to the 20th century: the precious commodity that determines the wealth of nations.”

Water might also be the precious commodity that determines the wealth of investment portfolios.

The Daily Reckoning