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The Water Crisis Is Your Investment Opportunity


Diverse sectors and subsectors give you many chances to profit.


As with any industry, well-positioned and well-managed companies will be the prime beneficiaries of water stress. There will be winners and losers, incredible growth in some companies, and incredible failures. However, the world is in the very early stages of water-issue awareness. As difficulties accelerate and become more mainstream, an increasingly large amount of money will flow to the theme.

The opportunity in the water space is very diverse, as it offers opportunity in multiple industries. While infrastructure in general has been a hot investment theme over the past several years and is an important aspect of the water situation, it would be a misjudgment of the opportunity to focus on that area alone.

I break down the water-investment universe into the following subsectors: water utilities; engineering and consulting; equipment and infrastructure; treatment; instrument; test and technology; asset and agriculture; and energy and cleantech. Each of these areas has companies that have similar drivers or business opportunities. As a whole, it provides ample opportunity across multiple industries as well as natural diversification.

Using agriculture as an example, it's the largest user of water on a global basis. There is opportunity within agriculture in a few different areas: Irrigation is one place efficiency can be added: Moving from flood irrigation to precision irrigation would reduce water usage as well as increase crop yields. Fertilizer would help increase yields, and companies that modify seeds could alter the ability of crops to withstand drought, increase their harvests, or grow with less water. All of these examples could reduce water usage, thus freeing water for other applications -- either consumptive or industrial.

Technology will increasingly become an opportunity, as well. As we discussed previously, there are new pollutants emerging that need to be monitored, tested for, and mitigated. In addition, there will be opportunity to track and analyze data surrounding water use for multiple industries. International Business Machines (IBM) recently entered the water business in this capacity, monitoring and analyzing data in hopes of making water "smarter."

Why This Time Is Different

The investment community is very adroit at exploiting crisis for financial gain, and in the past, crises have been hyped, only to fade away without significant consequences. Dare I say that this time is different?

The water crisis is all too real, and will accelerate in coming years. I've come to this conclusion by looking at a series of issues which on the surface, are independent, but in reality, are inextricably connected:

  • population growth
  • emerging middle class
  • climate change
  • water-energy-agriculture nexus
  • finite resource
  • global trade (water movement)

All of the issues listed above are serious problems on their own. But as each one develops into a bigger problem, it influences the others and helps create the feedback loop discussed earlier. In the end, it will become a simple statement that defines the issues: Demand is outstripping supply.

There will be opportunity for new and old technologies. But in the end, the beneficiaries will be well-positioned and well-managed companies. And that's what I'm going to find.

No positions in stocks mentioned.
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