Value Line is regarded as the best independent research available. More than just recommendations, Value Line provides the rationale behind its picks for greater understanding.
- Don D., California
Water Purification Investment Opportunities
Over the coming 20-30 years clean drinkable water will become increasingly scarce. We think that investing in companies that focus on the technology used in the water purification process may perform quite nicely. There are some pundits who believe the value of water may surpass that of oil over this time frame. Whether or not this is true is somewhat irrelevant, the main fact to remember is that we are all made up of 60% water, and as the population continues to grow, so will our need for potable, disease-free water sources. The demand is clear and will continue to grow. The variable here is which companies will benefit from creating the supply.
Reports from the United Nations and the World Health Organization estimate that by 2050 more than two billion people in 48 countries will lack sufficient clean water. These problems are not just limited to arid climates with little rainfall. The conservation, storage, and distribution of water all play a part in having an adequate supply. A deficiency of usable water forces people to store it in unsafe conditions. Storing it in the home opens up a breeding ground for mosquitoes, which, in turn, bring about potential diseases like malaria and dengue fever. Furthermore, in some instances, people are forced to use unsafe water to clean themselves, clothing, and homes, as well as for cooking and drinking. All of these scenarios present their own problems. But again, the end result is that these developments will drive demand for water purification and the companies that hold those technologies down the road.
Currently, the two primary methods for desalinization and purification are through the use of reverse osmosis systems and distillation. The former utilizes specially designed membranes, that allow salt and contaminants to be filtered out of sea water. The latter uses heat to vaporize water then captures the clean water vapor and condenses it in a still. Unfortunately, these methods are expensive due to the energy needed to heat the water and the cost of the membrane filters. Although some recent technological advances have made them more efficient, there is still much room for improvement.
Experimental techniques are in the works. Employing geothermal hot springs to heat the water used in the distillation method could cut down on costs. Nanotube membranes may end up being a more effective, cost efficient alternative to existing reverse osmosis systems. Finally, vacuum distillation is one other potential alternative in the pipeline. Water can boil and turn into vapor at a much lower temperature when it is done inside of a vacuum. In fact, if the pressure is low enough, water can boil at ambient temperatures of 45-50 degrees Fahrenheit. Currently, there are companies putting these technologies into use, unfortunately these cutting edge programs are often times difficult to invest in as an individual. But gaining exposure to some pure-play water purification companies or even the large conglomerates, should prove beneficial as the larger multinationals and experienced participants often acquire new technologies once they have proven viable.
Some major multinational conglomerates have divisions devoted to water purification and/or desalinization. For example, General Electric (GE - Free Analyst Report) has the Water & Process Technologies unit, The Dow Chemical Company (DOW) has Filmtec, Siemens AG (SI) has Reverse Osmosis Systems, and E.I. du Pont de Nemours & Company (DD - Free Analyst Report) has the Water and Sewage Treatment unit. These four companies focus on the larger scale aspects of water purification. Still, they may appeal to investors looking for exposure to this segment of the market while retaining a large amount of diversification.
For a slightly different angle, and on a much smaller scale, companies like The Clorox Company (CLX) and The Proctor & Gamble Company (PG) produce at-home water filtration systems such as Brita and Pure, respectively. The difficulty here, as with the larger conglomerates, stems from one not being able to invest in a pure water purification or desalination play, as the exposure to said technologies is somewhat limited.
However, some pure plays do exist. Companies like Nalco Holding Company (NLC) provide water treatment services. In fact NLC’s Corexit oil dispersant was believed to have been used by BP plc (BP) in its oil clean-up efforts. Calgon Carbon Corporation (CCC) is a leading producer of granular powdered carbon that is used to remove organic chemical compounds from liquids and gases. And on a slightly different note, Mueller Water (MWA) and Watts Water Technologies (WTS) design and manufacture water-infrastructure and flow-control products used in water-distribution networks.
Clearly there are many different possibilities for investments when reviewing this segment of the market. And ultimately it will be up to the individual investor to decide which stock may or may not be right for his or her portfolio. On balance, we feel this technology, current global trends in population growth, and water scarcity as it exists today present a solid case for investing in these types of businesses.
At the time of this article’s writing, the author had positions in: GE.