The decreasing availability of quality water is increasing the amount people will pay for it, and that could be good news for investor's portfolios.
Water shortages are increasing due to high demand, growing populations, and heightened standards of living, as well as climate change. As such, investment in water infrastructure is becoming a key response of the financial crisis, according to Janney Montgomery Scott Senior Analyst Debra Coy and Brean Murray, Carret & CO. Sr. VP of Research Michael Gaugler.
"Anytime you're replacing water mains, you're digging up the streets," Gaugler said. "In some cases 70 percent of the cost to replace a water main is the labor. So if you're spending money on water main replacement, you are in effect creating jobs or at least keeping people employed."
The EPA has estimated that at least $250 billion needs to be spent on water improvement.
American Water Works is Gaugler's favorite because it trades at a discount to its peer group in the US utility space, benefits from increased rates, and has long-term growth opportunities.
Aqua America, Calgon Carbon, and Sabesp are other water companies that Gaugler likes.
Investing in water stocks places the investor in smaller companies that concentrate on utilities, repair, and engineering. To benefit, the investor must pick stocks carefully, Coy said.
She likes Tetra Tech, California Water Service ,and Insituform .
Be Wary of These
Coy advises against Powershares water ETF because many of its largest holdings are not actually "water" stocks but rather diversified industrials with some water exposure.
Gaugler dislikes Idex Corp because its spending in key end markets continues to deteriorate.