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5 water investments to consider

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Highlights
  • Though water covers 70 percent of the globe, only 1 percent of it is usable.
  • Water prices could double and triple over the next few years.
  • There are more than 7,500 desalination plants operating worldwide.

Last year's devastating drought in the U.S. taught us a valuable lesson: Water isn't as plentiful as we think.

Though water covers 70 percent of the globe's surface, only 1 percent of it is usable. The rest is covered by salt water or locked up in glaciers high in the mountains.

And that 1 percent cache is rapidly dwindling worldwide, driven by population growth, industrialization and pollution that ruin fresh water. By 2030, our blue planet will face a 40 percent global shortfall in water supply, according to the World Economic Forum. In the U.S., at least 36 states are expecting water shortages in 2013, even without a drought, according to the U.S. Environmental Protection Agency.

No wonder some see a huge upside in water investments.

Nothing exists without water, says Neil Berlant, head of the water group at investment firm Crowell, Weedon & Co. in Los Angeles. Also, water demand is rising in manufacturing, electronics (in chips) and agriculture -- where most water ends up. For those reasons, it's always a good time to invest in water.

In the past, water was free to the public and didn't have monetary value. But Berlant says water prices could double and triple over the next few years. "All the easy-to-get water has already been tapped," he says.

For now, Steve Hoffmann, managing director of the investment advisory firm WaterTech Capital in Plano, Texas, says the global water industry amounts to $620 billion in revenues. But in the next 25 years, up to $25 trillion could be spent on global water and wastewater infrastructure expenses. The result is that water is a compelling long-term investment, he says.

Though there are 400 water-related companies globally, most are in the U.S. And some are set to profit from growth in water products, which can clean undrinkable water or deliver it more efficiently. Many companies also export their water-related products overseas, where demand is high.

Experts such as Berlant have carved out five high-growth niches within water investments that could be valuable parts of a diversified stock portfolio as these companies aim to improve the quality and usage of water.

Water treatment. All water requires treatment before drinking it, making this a high-growth area. One subsector within water stocks that's especially appealing is desalination, which takes salt out of seawater, Berlant says. Currently, there are more than 7,500 desalination plants operating worldwide, mostly in the arid Middle East.

The portion of the water supply that has been desalinated is poised to notch 9.5 percent in growth annually this decade, reaching 54 billion cubic meters by 2020, according to Boston-based Lux Research. So desalination will be increasingly important.

General Electric makes desalination equipment as does Energy Recovery in San Leandro, Calif.

"Though it still isn't as cheap as drawing water out of a river, desalination is a substantial answer to water shortages," Berlant says.

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