Water that’s suitable for human consumption, crop irrigation, and industrial use is in short supply, observes Jim Powell, international investing expert and editor of Global Changes & Opportunities Report.
Although ocean water makes up about 96% of our planet’s surface, its high salt content makes it unusable for our use without expensive processing. Most of the remaining 4% of our water is trapped in polar ice. Only about 1% of our water is suitable for our needs as it comes out of the ground.
The need for more pure water is increasing rapidly as the world’s human population balloons from nearly eight billion people today, to 9.7 billion by 2050.
Overuse and climate change are also causing serious water shortages in many parts of the world. Access to water has even led to wars in many regions — including four countries in the Horn of Africa. We can expect to see more conflicts as water becomes even more precious.
Not surprisingly, companies that supply and process water are joining other natural resource producers that offer excellent opportunities for long-term investment profits. Two of them look especially attractive.
American Water Works (AWK)
One of America's oldest water utilities — and its largest — is American Water Works, which was founded in 1886. In 2008, the company finally went public for $21.50 a share. By April 2022, AWK was up an impressive 686% to $169. In response to the poor economic outlook and the broad stock market selloff, AWK has since settled back to $127.
Although most investors consider American Water Works to be a boring utility, the company has been remarkably aggressive. AWK has been expanding its infrastructure through buyouts and by increasing its customer base.
In addition, management recently announced it expects to spend as much as $25 billion over the next 10 years to increase the company’s growth. Those are not the tepid plans for the future that we find with most utility companies.
I think AWK is very attractively priced and should perform well in long-term accounts. It is especially well suited to be an anchor stock in IRAs, and family trusts.
Xylem, Inc. (XYL)
Some of the most promising water stocks don’t own a drop of the resource themselves. Instead they supply utilities with the equipment they need to purify and deliver clean water to their customers. I think the most promising water technology company is Xylem.
Xylem supplies the water industry with products that purify water for our needs. There is a lot more involved in the process than passing water through filters. Semipermeable membranes are often used to remove unwanted contaminants such as heavy metals, pesticides, and other pollutants. The company also supplies technology for decontaminating waste water from factories and sewage treatment plants.
In addition, Xylem produces many mundane products for its customers such as water meters including smart meters — pumps, control systems, instruments for chemical analysis, and so on — all of which are profitable.
The company believes the total potential value of the market it serves to be approximately $60 billion — much of which has yet to be served. The great size of the water market leaves a great deal of room for Xylem to grow — and several years for the growth to continue. This should be a good time to take long-term positions in the stock.
