What’s the deal?
The global water crisis is best summarized in a series of quantitative facts, so here we go! Of the global water supply, only 0.3% is available for human consumption. With an exponentially increasing population, the demand for this finite amount of water is skyrocketing. Water.org states that:
Women spend 200 million works hours daily to provide water for their families.
780 million people lack access to clean water.
3.4 million people die from a water related disease each year.
The water crisis strikes domestically as well. Expanding industrial use in nuclear cooling, hydrofracking, and ever-increasing agricultural use is further increasing the water demand. The American Society of Civil Engineers reports in the 2013 Report Card for America’s Infrastructure the following investments are necessary to repair American water infrastructure:
$21 billion for dam repair
$100 billion for levee repair
$15 billion in wastewater treatment system repair
$1 trillion in drinking water infrastructure repair
This rings in a total of $1.136 trillion required in U.S. government investment.
Now what?
The serious need for innovation in water conservation and supply and investment in water infrastructure has presented a long term profitable investing opportunity. The water industry is projected to increase from (2007) $522 billion to $961 billion by 2020. This would place the water industry at a higher valuation than the global airline industry. So, how can investors like you take advantage of this opportunity?
1. Xylem
Xylem Inc (NYSE:XYL) spun off from ITT Corp (NYSE:ITT) in 2011. Xylem Inc (NYSE:XYL) offers a wide range of water products and services including, but not limited to, the following:
Water quality logging and monitoring systems
Wastewater processing solutions
Large scale water transporting and handling systems
Desalination equipment
With 63% of revenue coming from international markets, and 20% of revenue coming from emerging markets, Xylem Inc (NYSE:XYL) has shown a commitment to addressing the crisis head on. Xylem has a reasonable P/E of 19.45 and offers a 1.6% dividend yield. Xylem Inc (NYSE:XYL) stock has traded flat for 2013, but it has just over $500 million in cash, and the shakedown from the spinoff is nearly complete, so future stock growth looks promising.
2. American Water Works
American Water Works Company Inc (NYSE:AWK) is a public utility company operating in the United States and Canada. American Water Works serves approximately 14 million people across 30 U.S. states. The company currently holds 15 state subsidiaries, and is steadily expanding through further acquisitions.
Trading at its 52 week high, American Water Works Company Inc (NYSE:AWK) has put together 7.9% year-on-year revenue growth and 15.7% YOY EPS growth. America Water Works is also sporting a nice 2.6% dividend yield. While American Water Works Company Inc (NYSE:AWK) is carrying a fair bit of short and long term debt, much of this is attributed to the recent growth-through-acquisition strategy. American Water Works Company Inc (NYSE:AWK) is a safe long term bet for income investors, but keep an eye on the debt!
3. Siemens AG
Siemens AG (ADR) (NYSE:SI) offers a similar set of services as Xylem, but packaged within a blue chip company that is well-diversified across a number of other industries, including automation, energy, and healthcare. Siemens AG (ADR) (NYSE:SI) Water spans across the life sciences industry, power industry, drinking water treatment industry, and many more.
This German giant has a $92.8 billion market cap, and a solid 2.7% dividend yield. Siemens AG (ADR) (NYSE:SI) is carrying over $14 billion in cash and healthy amount of debt. Siemens has a mean analyst consensus rating of outperform. As the video below shows, Siemens AG (ADR) (NYSE:SI) has a strong focus on water innovation, making the company a strong long-term buy.
Conclusion
With exponential population growth and increased industrial and agricultural water use, the strain on the natural water resources has become very severe. The water industry is expected to grow in size from $522 billion to $961 billion by 2020. Water innovation is a top priority for a range of social and industrial reasons. While the water crisis is severe, it presents an excellent opportunity for businesses, and subsequently, investors. Xylem Inc (NYSE:XYL), American Water Works Company Inc (NYSE:AWK), and Siemens AG (ADR) (NYSE:SI) are all appealing long-term plays in the water space.
The article Water: Not a Drop to Drink, but Plenty of Money to Be Made originally appeared on Fool.com and is written by Robinson Greig.
Robinson Greig has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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