Thirsty for Good Stocks? Look to Water Scarcity

These are dry times.
Sep. 07, 2022 22:13
Thirsty for Good Stocks? Look to Water Scarcity

(CapitalWatch, Sep. 7, New York) Droughts are becoming more common and are lasting longer. In the Western United States, for example, the demand for freshwater is outpacing supply, leading states like California to introduce stricter water controls. How dry is the West? A recent study shows the region is suffering the worst drought in over a millennium.

According to the 2018 United Nations World Water Development Report, nearly 6 billion people will suffer from clean water scarcity by 2050.

For those that don't believe the science, perhaps the fact that Michael Burry, the investor famous for calling the housing bubble before it burst, has long been focused on investment opportunities in water scarcity. Some call fresh water, which only makes up 3% of the earth's water, the oil of the 21st Century. For civilization, this is scary stuff. For investors, water scarcity could be the equivalent of liquid gold.

Liquid Gold

If you're looking to play water scarcity more generally, there are several ETFs to investigate. Of these, Invesco Water Resources (PHO) is a solid, broad play on the inevitability of sadly thirsty world. Its top three holdings are the utility American Water Works (AWK), Roper Technologies (ROP), which makes smart water meters for utilities, at 8.2%; and water technology provider Xylem (XYL).

For more focused investments, investors can look to companies striving to solve different aspects of the ensuing water crisis. Companies that provide irrigation systems, such as Lindsay Corp. (LNN), are interesting play. So too are companies focused on dredging such as Great Lakes Dredge and Dock Corp. (GLDD).

For the water industry novice, dredging is the act removing silt and other material from the bottom of bodies of water. As sand and silt washes downstream, sedimentation gradually fill channels and harbors. The global dredging market is estimated at $15.7 billion in 2022 and is forecast to reach $21.4 billion by 2032, growing with a CAGR of 3.3% from 2022 to 2032. At around $9.62 per share, GLDD is now under its pre-pandemic high—and is significantly down from its over $15 per share runup it saw in 2021.

The Glass Is Half Empty

Water shortages are going to increase. Whether 700 million people are displaced by intense water scarcity by 2025, as UNICEF estimates, or it takes longer for the Water End Times to arrive, is a matter of debate. Time will tell. But for a long-term bet on an industry, companies that successfully solve—or even mitigate—the water scarcity crisis that is coming are bound to be swimming in profits.

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