Are Water Stocks More Valuable than Gold?

By Steve Smith  SEP 14, 2009 2:30 PM

Eventually this overlooked commodity will yield big profits.


The recent run-up in all asset classes -- especially those of a physical nature, such as gold and oil -- makes me think of the underrated Waterworld movie from 1995 in which Dennis Hopper captains his group of degenerate “smokers” aboard the oil-laden remnants of the Exxon Valdez (XOM) in search of life-sustaining fresh water.

The smokers are in a race to find water before their robust but dwindling oil supply runs out. The fishman, played by Kevin Costner, seems to offer answers and the pursuit is on.

What’s interesting is that the smokers, in their pursuit of water, completely ignore that the fishman has created a completely “green” world on his catamaran. Using wind, the sun, and of course, a fresh plate of mahi mahi from craft services, he’s created an idyllic life on the sea. So the smokers simply roam and wreak havoc and hope for some answer on high.

Similarly, even as the world approaches peak oil situation and will ultimately need to make use of alternative energy sources, the fact is, at the moment, there’s a huge inventory with boats full of fossil fuel drifting along the oceans and waiting for an increase in economic activity that will demand delivery and bring them to a port of call.

Water Stocks Should Bear Fruit

I’ve never understood why, historically, water has never been a store of value. It seems eminently more important and useful than any metal or even fuel, yet retains the bottom baseline measure -- along with air -- as to how cheap something can be. Stranded at sea, I’d rather have an ounce of water than a pound of gold. Eventually, the value of water will bear fruit.

A recent article in the New York Times highlights that access to clean water isn’t just a third-world problem. The dual challenges of turning naturally abundant sources into usable water -- such as the ocean through desalinization – and the filtering out of toxins from industrial run off will be the next great tests and opportunities for the world.

Tetra Tech (TTEK) is my favorite name as a way to play water as a commodity of increasing value. Tetra offers various infrastructure services, but its focus on water management -- including filtration and waste disposal -- makes this a relatively pure play on maintaining and developing a drinkable water supply.

A promising desalination company is Consolidated Water (CWCO). The stock has been moving sideways for the past few weeks but it is holding above the 50-day moving average at $17.80, which may provide a good entry point.

Other more diversified companies that have exposure to water include Shaw (SHAW) and URS Corp (URS), which, through their larger footprint, might be better positioned to win government contracts that involve multiple municipalities or combination utility services.

If given oil or gold, all you can do is search for a way to exchange it for food and water. Water stocks bring you directly to the source.

No positions in stocks mentioned.

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