Introduction to Investing in Water Stocks

The case for investing in water is compelling.

Some estimates say that between $1 trillion and $2 trillion will be needed over the coming two decades to modernise global water systems.

In the US alone, at least half the 1.5 million miles of drinking and waste water pipeline is said to have reached the end of its useful life.

China and India in particular will require massive spending on water infrastructure as they continue in their drive to modernise and industrialise.

Water specialists Summit Global Management state frankly:

We have been water investors for a very long time, and we still have never seen an investment theme that comes remotely close to providing the risk-reward characteristics of the global water industry. The industry has certainly evolved over the last 25 years, and the changes are virtually all positive. The outlook for water stocks today is much better than it was 25 years ago, and we have never been as optimistic as we are today about the future of our chosen investment arena.

Water companies can be broken down, very roughly into four broad areas:

Water utilities.

Suppliers of basic water infrastructure equipment, including machinery, pumps and piping.

Companies that make water treatment, filtration and purification equipment, chemicals and systems, or provide such services.

A range of other companies providing miscellaneous products and services, such as suppliers of bathroom sanitation equipment, and mineral water bottlers.

There is far less stock market speculation in this industry than in many other areas of cleantech. Unlike, say, the world of solar energy, stocks tend to be profitable and to be trading on reasonable multiples.

Still, it is worth considering this practical investment advice from SAM Sustainable Asset Management:

To make successful investments in the water sector, investors therefore not only need to be informed about the latest technical advances and industry solutions, but must also closely follow developments and decisions on the political and legislative front. The introduction of new environmental standards, tougher demands on water quality, more public spending on infrastructure construction and maintenance as well as the fixing of tariffs and fees, will have a significant impact on the growth of individual segments of the water market and, consequently, on the attractiveness of companies doing business in these segments.

In the years to come, water will develop into a dynamic market of the future. Given the global trends that are shaping the water market, demand is unlikely to drop off in the long term. While due account needs to be taken of company valuations, investors with a long-term horizon can therefore expect to find numerous worthwhile and attractive investment opportunities.

February 25th, 2008

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