Risk analysis firm Maplecroft just released its new fiscal risk index ranking of 163 countries. Europe trumps all other regions with 11 out of twelve courtiers rated as “extreme risk.” However, quite surprisingly, only one PIIGS country–Italy which takes the top spot–is in the top 12.
The others include many big economies in Europe - Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), United Kingdom (10), Finland (11) and Greece (12). Japan at No. 9 is the only other country not in Europe within the highest risk category (See map below).
Aging Demographic
While high national debt and public spending are two common denominators, the study finds it is the aging demographic that puts these countries at extreme fiscal risk. An aging population will place increasing pressure on public expenditure such as pension and health care, while a shrinking working-age population means less productivity and less tax revenues to support public spending and debt payments.
High Dependency Ratio
Aging population also leads to high dependency ratio, or the number of people 65 and older to every 100 people of traditional working ages. For example, according to Maplecroft, that ratio in France is 1 to 47 (i.e. 47%), Germany at 59%, Italy with 62% and Japan at the very top with 74%. The ratio in UK is currently 25%, and is forecast to rise to 38% by 2050.
Low Senior Labor Participation Rate
Another problem within Europe is that it has a low labor participation rate in the 65+ age bracket. In fact, the labor market participation of age 65+ amongst the ‘extreme risk’ nations ranges from 1.4% in France, 7.71% in UK, to 11.7% in Sweden, vs. a 28% average across all countries ranked in the index.
U.S. – High Fiscal Risk
Although the United States is not ranked among the “extreme fiscal risk,” the country is nevertheless classified as “high risk”, along with Spain, also a member in PIIGS, Australia, Canada, and Russia.
Let’s take a look at the two metrics mentioned here.
The dependency ration in the U.S. is 22 in 2010, but is projected to climb rapidly to 35 in 2030, according to the U.S. Census Bureau, mainly due to baby boomers moving up into the 65+ age bracket. The ratio then will rise more slowly to 37 in 2050.
The labor participation for age 65 and over in the U.S. is at 17.5 according to data at Bureau of Labor Statistics (BLS). This is better than most of the European countries, but below the overall average of 28%.
Wave II To Include U.S.
Most people typically associate country’s fiscal risk to the government’s monetary and fiscal policies and Lehman Brothers has taught us that banking and housing crisis could push the entire world into the Great Recession. While these are definite risk factors, a highly productive labor force and relatively young population makeup tend to mean sustainable prosperity and better odds at climbing out of a hole.
The Maplecroft study concludes:
“…in high risk countries, it is increasingly likely that the private sector will be called upon to contribute in the form of pensions and private health care…. Without significant adjustments, such as raising taxes or reducing spending, countries risk going bankrupt.”
Meanwhile, the fact that U.S. dollar actually went down during this crisis in Libya and Egypt is very telling regarding the diminishing safe haven status of the dollar as well as the United States.
So, while widespread protests are still going on in Europe over pension age being raised and many austerity measures, amid the European sovereign debt crisis, the U.S. and other countries in the same “high fiscal risk” seem to be set for the wave II of this global fiscal chain of events.
Friday, February 25, 2011
Tuesday, February 22, 2011
Profit Opportunity: More Water Through Technology :Desalinization & Genetic Engineered Seeds
Yesterday, I discussed the pressures being put on the global supply of fresh water. Nearly 1 billion people don’t have access to clean drinking water – and as the world’s population grows, the situation will only get worse. A growing population also means more mouths to feed, and the need for more water to grow increasing amounts of food.
It’s downright scary. But there are ways that technology can help. And investing in the companies that provide solutions to the world’s water problems can make you at least 50% over the next few years.
Currently, nearly 70% of global water use is for agriculture. So one solution is to ease the demand for water with the “more crop per drop” approach. In other words, to grow more food with less water.
This will come in the form of genetically modified seeds.
These seeds are showing great promise. Last year, for example, under drought conditions, one company tested seeds with a water optimization trait. And they were able to increase yields by 25%.
It is thought that, with this technology, we could reduce agricultural water use by 30% in the next few decades. That would have a tremendous impact on water demand.
Another solution to the world’s water problems is to “create” more fresh water. Salt water is abundant. Unfortunately, we can’t drink it. But through technology, we can convert salt water to fresh water. The desalination process removes salt and other minerals from salt water and makes the water fit for human consumption.
Desalination plants are usually found in locations that have limited (or no) fresh water resources but access to an abundant amount of salt water. That is why they are so common in the Middle East.
The United Arab Emirates has the world’s largest desalination plant. It provides the country with 300 million cubic meters of water per year.
Israel gets 5%-6% of its daily water needs from a desalination plant.
We have them here in the US too. The largest is in Tampa, Florida. The city gets 25 million gallons of drinking water a day from its desalination plant.
Producing drinkable water in this manner uses a significant amount of energy. So it costs more to produce desalinated water than to pull fresh water out of a lake or stream. But that should change very soon.
For one thing, the cost of fresh water is going up. Last year, for example, Houston raised its water rates 30%. Expect more of the same not only in the US, but across the globe as well. As the cost of fresh water increases, it will get closer to the cost of desalinated water. Meanwhile, the cost of desalination is falling as technology improves.
Both of these solutions to the world’s water crisis – the “more crop per drop” approach and the desalination approach – have benefited readers of my Trend Trader portfolio.
The seed company I mentioned earlier that increased yields 25% is in the portfolio. It has already returned 50.07% for my readers in 8 months.
And one of the world’s leading builders of desalination plants is in the portfolio too. It has returned an impressive 61.93% for my readers in only 9 months.
To gain full access to the Trend Trader portfolio, sign up for the Liberty Street Investor here.
Respectfully,
Christian Hill
Managing Editor
Early To Rise - Investor's Edition
It’s downright scary. But there are ways that technology can help. And investing in the companies that provide solutions to the world’s water problems can make you at least 50% over the next few years.
Currently, nearly 70% of global water use is for agriculture. So one solution is to ease the demand for water with the “more crop per drop” approach. In other words, to grow more food with less water.
This will come in the form of genetically modified seeds.
These seeds are showing great promise. Last year, for example, under drought conditions, one company tested seeds with a water optimization trait. And they were able to increase yields by 25%.
It is thought that, with this technology, we could reduce agricultural water use by 30% in the next few decades. That would have a tremendous impact on water demand.
Another solution to the world’s water problems is to “create” more fresh water. Salt water is abundant. Unfortunately, we can’t drink it. But through technology, we can convert salt water to fresh water. The desalination process removes salt and other minerals from salt water and makes the water fit for human consumption.
Desalination plants are usually found in locations that have limited (or no) fresh water resources but access to an abundant amount of salt water. That is why they are so common in the Middle East.
The United Arab Emirates has the world’s largest desalination plant. It provides the country with 300 million cubic meters of water per year.
Israel gets 5%-6% of its daily water needs from a desalination plant.
We have them here in the US too. The largest is in Tampa, Florida. The city gets 25 million gallons of drinking water a day from its desalination plant.
Producing drinkable water in this manner uses a significant amount of energy. So it costs more to produce desalinated water than to pull fresh water out of a lake or stream. But that should change very soon.
For one thing, the cost of fresh water is going up. Last year, for example, Houston raised its water rates 30%. Expect more of the same not only in the US, but across the globe as well. As the cost of fresh water increases, it will get closer to the cost of desalinated water. Meanwhile, the cost of desalination is falling as technology improves.
Both of these solutions to the world’s water crisis – the “more crop per drop” approach and the desalination approach – have benefited readers of my Trend Trader portfolio.
The seed company I mentioned earlier that increased yields 25% is in the portfolio. It has already returned 50.07% for my readers in 8 months.
And one of the world’s leading builders of desalination plants is in the portfolio too. It has returned an impressive 61.93% for my readers in only 9 months.
To gain full access to the Trend Trader portfolio, sign up for the Liberty Street Investor here.
Respectfully,
Christian Hill
Managing Editor
Early To Rise - Investor's Edition
Monday, February 21, 2011
Wall Street Is Driving Up Heating Bills?
It's likely that no bankers are sneaking into your house like cobbler’s elves to turn up your thermostat.
But Wall Street still could be driving up your heating bills.
Here’s how: Wall Street banks gamble on what they think future energy costs will be. By dominating the market in these “energy futures,” they actually raise the price of energy for you and me. Without competition in these markets, these prices stay artificially high — and so do big bank profits.
Tell the Commodity Futures Trading Commission to stand up for consumers and to end bank domination of energy markets.
Thankfully, a part of the Wall Street reform law that passed last summer is designed to end bank domination of energy markets. Basically, the law gives a federal agency called the Commodity Futures Trading Commission the authority to make these markets more transparent and competitive.
But, of course, the banks have hired lobbyists to fight the agency’s rules every step of the way.
Wall Street bankers are keeping energy prices artificially high by keeping these energy futures markets secret just so they can make even more profits.
Take action now! Go to: Citizen.org Energy Futures Petition
It’s time to shine some sunlight on bank activities that drive up consumer prices. Tell the Commodity Futures Trading Commission to stand up for consumers.
Thanks for all you do,
Rick Claypool
Public Citizen's Online Action Team
action@citizen.org
Visit our Financial Reform page to learn more about Public Citizen's work to hold big banks accountable. To get regular e-alerts about opportunities for activism and other ways to help with Public Citizen's work, sign up for the Public Citizen Action Network.
Contribute | © 2011 Public Citizen | Take Action
But Wall Street still could be driving up your heating bills.
Here’s how: Wall Street banks gamble on what they think future energy costs will be. By dominating the market in these “energy futures,” they actually raise the price of energy for you and me. Without competition in these markets, these prices stay artificially high — and so do big bank profits.
Tell the Commodity Futures Trading Commission to stand up for consumers and to end bank domination of energy markets.
Thankfully, a part of the Wall Street reform law that passed last summer is designed to end bank domination of energy markets. Basically, the law gives a federal agency called the Commodity Futures Trading Commission the authority to make these markets more transparent and competitive.
But, of course, the banks have hired lobbyists to fight the agency’s rules every step of the way.
Wall Street bankers are keeping energy prices artificially high by keeping these energy futures markets secret just so they can make even more profits.
Take action now! Go to: Citizen.org Energy Futures Petition
It’s time to shine some sunlight on bank activities that drive up consumer prices. Tell the Commodity Futures Trading Commission to stand up for consumers.
Thanks for all you do,
Rick Claypool
Public Citizen's Online Action Team
action@citizen.org
Visit our Financial Reform page to learn more about Public Citizen's work to hold big banks accountable. To get regular e-alerts about opportunities for activism and other ways to help with Public Citizen's work, sign up for the Public Citizen Action Network.
Contribute | © 2011 Public Citizen | Take Action
Thursday, February 17, 2011
Sunday, February 13, 2011
10 Moves for the World's Most Precious Commodity: Water
By Larry D. Spears, Money Morning
Monday, February 14, 2011
2010 was the year of the commodity. Gold prices soared, copper hit record highs, oil again marched towards $100 a barrel, and many agricultural products doubled in value. Yet hardly a word was spoken about the world's most precious commodity - water.
Indeed, few people in the developed world think of water as a commodity. After all, they can usually get all they want out of the tap in their kitchen or bathroom. And even fewer think about water's price - unless, of course, they're buying a bottle at their local convenience store, where it typically cost twice as much as gasoline.
But for the rest of the world - and even some areas in the United States and other developed nations - water represents a significant problem because of supply shortages, poor quality, or inadequate distribution and disposal systems. And, thanks to a mushrooming global population, the water problem is rapidly approaching crisis proportions.
Consider the following data, compiled by the World Water Council (WWC) from a variety of sources, including the United Nations (U.N.), the World Health Organization (WHO), the Pacific Institute and others:
The world population in the past 50 years more than doubled to an estimated 6.896 billion at the end of 2010, from just over 3 billion in 1960 - with annual growth rates ranging from 2.2% in 1963 to 1.1% in 2009. At those rates, the human population will rise to 9 billion by 2025.
Annual water usage has grown almost twice as fast as the global population, averaging 2.5% to 3.0% per year - the basis for a recent estimate by The World Bank that annual water demand now doubles every 21 years. That pace is likely to increase in coming decades as development progresses in more countries, boosting water demand, and creating more pollution to threaten supplies.
Roughly 17.5% of the world's existing population - 1.15 billion people - currently lacks access to ready sources of clean drinking water. More than 2.6 billion live in areas without adequate sanitation, a major factor in reducing clean-water availability.
Although more than 70% of the world's surface is covered by water, 97.5% of that is undrinkable seawater. Most of the remaining 2.5% is inaccessible, leaving just 0.1% of global water readily available for human use and consumption.
At least 80 countries are already experiencing water shortages; the U.N. estimates 67% of the world population will be "water stressed" by 2025.
Though the U.S. is in better shape than much of the world with respect to water, areas of the desert Southwest and West Coast are also experiencing increasing difficulties. The California Department of Water Resources in early 2010 reported that drought in the state's Central Valley was so severe that farmers had to bulldoze orchards and artichoke fields for lack of water.
Similarly, Tim Barnett of the Scripps Institution of Oceanography in a 2008 report estimated there was a 50% chance that climate change and excess usage could leave Lake Mead - the major source of water for Las Vegas - "effectively dry by 2021." At that time, the lake's level stood at 1,108 feet; today it's down to 1,081 feet.
Clearly, water offers a unique opportunity for investors. But be warned: finding so-called "water pure plays" is surprisingly difficult.
The Four Elements
Indeed, there are no water futures being traded on the New York Mercantile Exchange (NYMEX). So water investments are broken into four major divisions:
Water distribution and management - This includes both water-supply companies and firms involved in the construction of water plants, pipelines and other infrastructure. This division appears destined for substantial growth in the near future. While developing countries will need new and expanded water-distribution systems, many developed nations have badly deteriorating infrastructure that will need to be repaired or replaced.
Some estimates put total investment needs in this segment at more than $800 billion over the next decade alone. A big chunk of that will come from China, which two years ago pledged $200 billion to a 10-year program of water-infrastructure construction and upgrades.
The U.S. Environmental Protection Agency (EPA) predicts the United States will need to spend $277 billion on water infrastructure by 2020 to maintain present standards. That estimate is supported by the American Society of Civil Engineers (ASCE), which says the United States will require $14 billion a year to repair and upgrade drinking-water systems, with another $19 billion annually needed for sanitation systems. Overall, the ASCE said domestic infrastructure spending needs could reach $1 trillion over the next two decades.
Advanced water treatment - This industry segment focuses on water quality more than supply, and includes companies that manage water-treatment plants as well as those that manufacture systems and equipment used in the purifying, recycling and reclaiming of water. Given the changing climate and shifting weather patterns, reclaiming of wastewater is becoming increasingly important, already accounting for nearly 400 million gallons of recycled water annually, much of it for agricultural use.
The water treatment sector also has two subdivisions - reclaiming of raw materials, such as petroleum products, from polluted water, and desalination. Desalination, the conversion of seawater into fresh, drinkable water, is a rapidly growing field, particularly in arid areas such as the Middle East, where the bulk of the roughly 8,000 existing desalination plants are located. In the United States, both Las Vegas and cities in California and Arizona are either building or considering desalination plants. Globally, it's estimated that annual production of desalinated water could reach 14.2 trillion gallons by 2020.
Demand-side efficiency - This portion of the water industry focuses primarily on managing water resources, and includes companies that manufacture "smart meters" for measuring water usage, flow valves and other distribution-control devices.
Food production - This segment includes companies that manufacture irrigation and livestock-feeding equipment, develop more drought-resistant crops and work with farmers to help them reduce their water usage and better manage land and water resources.
Liquid Investments
Given the global scope of the water problem and the number of companies focusing on the individual industry segments, there are no dominant forces in the various fields. However, there are some leaders with promising prospects. They include:
American Water Works Co., Inc.(NYSE: AWK), recent price $26.65 - AWK is a water and wastewater utility company that provides drinking water, sanitation and other water-related services to approximately 16 million people in 35 states and two Canadian provinces. About 90% of its operating revenue comes from regulated utility operations, which means its income stream is guaranteed; however, the company is limited in its ability to raise rates. It has 80 surface-water treatment plants drawing from 100 lakes, 600 groundwater treatment plants, 1,200 water wells, 50 wastewater treatment plants and about 49,000 miles of pipes and mains. It has grown substantially in recent years, mainly through acquisitions including seven in 2009 alone (six regulated utilities and one unregulated business). Earnings for 2010 won't be reported for another couple of weeks, but the estimate for the trailing 12 months is $1.50 per share. An 88-cent dividend provides a yield of 3.3%.
Northwest Pipe Co. (Nasdaq: NWPX), recent price $23.95 - This is a top choice for those who'd prefer to focus on distribution and infrastructure. Based in Vancouver, WA, with plants in several other states, NWPX makes large-diameter steel pipeline systems for use primarily in high-pressure drinking water systems, hydroelectric power plants and wastewater treatment facilities, as well as a broad range of other structural steel and pipe products marketed throughout North America. The company lost 17 cents a share in fiscal 2009 due to a recession-related drop in new construction orders, but it's projecting a profit for both the fourth quarter and full-year 2010. That could give the stock a boost when the reports come out in mid-February.
Danaher Corp. (NYSE: DHR), recent price $49.72 - DHR has four major business segments, but the focus for water investors is its Professional Instrumentation (PI) division. (The Medical Technologies, Industrial Technologies and Tools and Components sectors provide added diversification.). The PI segment supplies analytical instruments and consumable solutions that detect and measure chemical, physical and microbiological parameters in drinking water, wastewater, groundwater, oceans and ultrapure water. The company also makes ultraviolet disinfection systems and chemical-treatment solutions, as well as analytical services to address corrosion, scaling and biological growth problems in boilers, water-cooling systems and industrial wastewater facilities. It also provides environmental monitoring and leak-detection systems, vapor-recovery equipment, fuel dispensers, submersible turbine pumps and remote monitoring services. DHR's estimated earnings for 2010 are $2.35 a share and it's also fairly cash rich, with $1.64 billion ($2.50 per share) in the bank. The stock pays a modest 8-cent dividend.
Veolia Environnement S.A. (NYSE ADR: VE), recent price $31.70 - Founded in 1853, Paris-based Veolia is one of the world's largest water infrastructure companies. It also has three other divisions, one of which - Environmental Services - focuses on wastewater collection, decontamination and recycling, as well as general sewage processing, waste management and pollution clean-up. The Energy Services and Transportation divisions provide added diversification, operating bus and suburban rail lines and providing management services for airports throughout Europe. With trailing earnings of $2.10 a share, and a Price/Earnings (P/E) ratio of 14.88, the stock seems reasonably priced, and the $1.23 dividend provides a yield of 4.57%.
Energy Recovery Inc. (Nasdaq: ERII), recent price $3.63 - If desalination is the wave of the future in water production, then ERII will likely be riding the crest of that wave. The California company designs and manufactures energy-recovery devices and pumps for use in seawater and brackish water desalination projects. It markets primarily to original-equipment makers and builders of small to medium-sized desalination plants in the Middle East and elsewhere around the globe. The company lost 5 cents a share over the past 12 months, but analysts predict a break-even for 2010 and a 2011 profit of up to 10 cents a share. [Note: If you'd prefer a less-focused approach to investing in desalination, both The Dow Chemical Co. (NYSE: DOW) and General Electric Co. (NYSE: GE) have growing divisions manufacturing the required equipment and plant-operating systems.]
Itron Inc. (Nasdaq: ITRI), recent price $62.35 - One of the clear leaders in the demand-side water efficiency sector, ITRI produces smart water and gas meters, electricity meters, automated watering systems, electronic water-usage and data-monitoring devices and ultrasonic water and heat meters, as well as a variety of other electrical and metering products, all of which it markets worldwide. Founded in 1977 and based in Washington state, Itron is expected to report earnings of $4.02 a share for 2010, up from $2.15 in 2009, with an increase to $4.33 in 2011. The company has a book value of $35.46 a share, but pays no dividend.
Lindsay Corporation (NYSE: LNN), recent price $71.29 - Based in Omaha, Neb., Lindsay is a leader in the design and manufacture of automated central-pivot, lateral and hose-reel irrigation systems used to increase or stabilize agricultural crop production while conserving water, energy and labor. It markets products internationally, including to China. Lindsay also has an Infrastructure division that supplies transportation departments and road-construction contractors, making everything from crash barriers to reflective pavement safety tapes. The company earned $1.83 a share for the fiscal year ended in August 2010, with $2.19 forecast for FY 2011 and $2.72 for 2012. The 34-cent dividend provides a yield of 0.52%.
Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE ADR: SBS), recent price $50.57 - If you'd like an international play as well as a water company, Brazil's Sabesp fits the bill. It provides water and sewage services in 365 of the 645 municipalities in the State of Sao Paulo (which is also a majority stockholder), serving 23.4 million people with water services through 7.2 million water connections. It also provides sewage services to 19.7 million people, with 5.6 million sewage connections, and offers other services including urban rainwater drainage and management, urban cleaning and solid waste management, power generation and conservation activities. The company earned $8.05 a share over the trailing 12 months, giving it a P/E of just 6.23, but the stock pays no dividend.
If picking one or two individual water-related investments out of the many available seems too daunting, there are several exchange-traded funds (ETFs) that can identify opportunities and provide diversification for you. Two of the top funds are:
PowerShares Global Water Portfolio (ETF), (NYSE: PIO), recent price $20.30 - PIO is based on the Palisades Global Water Index, which tracks a group of international companies that provide drinkable water, water-treatment systems and technology and services directly related to water consumption. The fund's equal-weighted portfolio is rebalanced and reconstituted quarterly, with current assets of $316.2 million. PIO, founded in June 2007, has provided a three-year total return of -8.15%, reflecting the impact of the economic slowdown on new water projects, but has yielded 1.36% over the past 12 months, and the stock is up 28.9% from its 52-week low.
Claymore S&P Global Water Index (NYSE: CGW), recent price $20.65 - CGW tracks the S&P Global Water Index, which consists of about 50 stocks traded on major world exchanges and selected based on the relative importance of the global water industry in the company's business plan. The index tries to balance representation from different segments of the water industry - 25 water utilities and infrastructure companies and 25 water equipment and materials companies. The fund normally invests at least 90% of its assets in common stock and American depositary receipts (ADRs) that comprise the Index. The fund, with $206.4 million in assets, reports a year-to-date return of 5.48% and a yield over the trailing 12 months of 1.03%.
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Larry D. Spears is a contributing writer for MoneyMorning.com
Monday, February 14, 2011
2010 was the year of the commodity. Gold prices soared, copper hit record highs, oil again marched towards $100 a barrel, and many agricultural products doubled in value. Yet hardly a word was spoken about the world's most precious commodity - water.
Indeed, few people in the developed world think of water as a commodity. After all, they can usually get all they want out of the tap in their kitchen or bathroom. And even fewer think about water's price - unless, of course, they're buying a bottle at their local convenience store, where it typically cost twice as much as gasoline.
But for the rest of the world - and even some areas in the United States and other developed nations - water represents a significant problem because of supply shortages, poor quality, or inadequate distribution and disposal systems. And, thanks to a mushrooming global population, the water problem is rapidly approaching crisis proportions.
Consider the following data, compiled by the World Water Council (WWC) from a variety of sources, including the United Nations (U.N.), the World Health Organization (WHO), the Pacific Institute and others:
The world population in the past 50 years more than doubled to an estimated 6.896 billion at the end of 2010, from just over 3 billion in 1960 - with annual growth rates ranging from 2.2% in 1963 to 1.1% in 2009. At those rates, the human population will rise to 9 billion by 2025.
Annual water usage has grown almost twice as fast as the global population, averaging 2.5% to 3.0% per year - the basis for a recent estimate by The World Bank that annual water demand now doubles every 21 years. That pace is likely to increase in coming decades as development progresses in more countries, boosting water demand, and creating more pollution to threaten supplies.
Roughly 17.5% of the world's existing population - 1.15 billion people - currently lacks access to ready sources of clean drinking water. More than 2.6 billion live in areas without adequate sanitation, a major factor in reducing clean-water availability.
Although more than 70% of the world's surface is covered by water, 97.5% of that is undrinkable seawater. Most of the remaining 2.5% is inaccessible, leaving just 0.1% of global water readily available for human use and consumption.
At least 80 countries are already experiencing water shortages; the U.N. estimates 67% of the world population will be "water stressed" by 2025.
Though the U.S. is in better shape than much of the world with respect to water, areas of the desert Southwest and West Coast are also experiencing increasing difficulties. The California Department of Water Resources in early 2010 reported that drought in the state's Central Valley was so severe that farmers had to bulldoze orchards and artichoke fields for lack of water.
Similarly, Tim Barnett of the Scripps Institution of Oceanography in a 2008 report estimated there was a 50% chance that climate change and excess usage could leave Lake Mead - the major source of water for Las Vegas - "effectively dry by 2021." At that time, the lake's level stood at 1,108 feet; today it's down to 1,081 feet.
Clearly, water offers a unique opportunity for investors. But be warned: finding so-called "water pure plays" is surprisingly difficult.
The Four Elements
Indeed, there are no water futures being traded on the New York Mercantile Exchange (NYMEX). So water investments are broken into four major divisions:
Water distribution and management - This includes both water-supply companies and firms involved in the construction of water plants, pipelines and other infrastructure. This division appears destined for substantial growth in the near future. While developing countries will need new and expanded water-distribution systems, many developed nations have badly deteriorating infrastructure that will need to be repaired or replaced.
Some estimates put total investment needs in this segment at more than $800 billion over the next decade alone. A big chunk of that will come from China, which two years ago pledged $200 billion to a 10-year program of water-infrastructure construction and upgrades.
The U.S. Environmental Protection Agency (EPA) predicts the United States will need to spend $277 billion on water infrastructure by 2020 to maintain present standards. That estimate is supported by the American Society of Civil Engineers (ASCE), which says the United States will require $14 billion a year to repair and upgrade drinking-water systems, with another $19 billion annually needed for sanitation systems. Overall, the ASCE said domestic infrastructure spending needs could reach $1 trillion over the next two decades.
Advanced water treatment - This industry segment focuses on water quality more than supply, and includes companies that manage water-treatment plants as well as those that manufacture systems and equipment used in the purifying, recycling and reclaiming of water. Given the changing climate and shifting weather patterns, reclaiming of wastewater is becoming increasingly important, already accounting for nearly 400 million gallons of recycled water annually, much of it for agricultural use.
The water treatment sector also has two subdivisions - reclaiming of raw materials, such as petroleum products, from polluted water, and desalination. Desalination, the conversion of seawater into fresh, drinkable water, is a rapidly growing field, particularly in arid areas such as the Middle East, where the bulk of the roughly 8,000 existing desalination plants are located. In the United States, both Las Vegas and cities in California and Arizona are either building or considering desalination plants. Globally, it's estimated that annual production of desalinated water could reach 14.2 trillion gallons by 2020.
Demand-side efficiency - This portion of the water industry focuses primarily on managing water resources, and includes companies that manufacture "smart meters" for measuring water usage, flow valves and other distribution-control devices.
Food production - This segment includes companies that manufacture irrigation and livestock-feeding equipment, develop more drought-resistant crops and work with farmers to help them reduce their water usage and better manage land and water resources.
Liquid Investments
Given the global scope of the water problem and the number of companies focusing on the individual industry segments, there are no dominant forces in the various fields. However, there are some leaders with promising prospects. They include:
American Water Works Co., Inc.(NYSE: AWK), recent price $26.65 - AWK is a water and wastewater utility company that provides drinking water, sanitation and other water-related services to approximately 16 million people in 35 states and two Canadian provinces. About 90% of its operating revenue comes from regulated utility operations, which means its income stream is guaranteed; however, the company is limited in its ability to raise rates. It has 80 surface-water treatment plants drawing from 100 lakes, 600 groundwater treatment plants, 1,200 water wells, 50 wastewater treatment plants and about 49,000 miles of pipes and mains. It has grown substantially in recent years, mainly through acquisitions including seven in 2009 alone (six regulated utilities and one unregulated business). Earnings for 2010 won't be reported for another couple of weeks, but the estimate for the trailing 12 months is $1.50 per share. An 88-cent dividend provides a yield of 3.3%.
Northwest Pipe Co. (Nasdaq: NWPX), recent price $23.95 - This is a top choice for those who'd prefer to focus on distribution and infrastructure. Based in Vancouver, WA, with plants in several other states, NWPX makes large-diameter steel pipeline systems for use primarily in high-pressure drinking water systems, hydroelectric power plants and wastewater treatment facilities, as well as a broad range of other structural steel and pipe products marketed throughout North America. The company lost 17 cents a share in fiscal 2009 due to a recession-related drop in new construction orders, but it's projecting a profit for both the fourth quarter and full-year 2010. That could give the stock a boost when the reports come out in mid-February.
Danaher Corp. (NYSE: DHR), recent price $49.72 - DHR has four major business segments, but the focus for water investors is its Professional Instrumentation (PI) division. (The Medical Technologies, Industrial Technologies and Tools and Components sectors provide added diversification.). The PI segment supplies analytical instruments and consumable solutions that detect and measure chemical, physical and microbiological parameters in drinking water, wastewater, groundwater, oceans and ultrapure water. The company also makes ultraviolet disinfection systems and chemical-treatment solutions, as well as analytical services to address corrosion, scaling and biological growth problems in boilers, water-cooling systems and industrial wastewater facilities. It also provides environmental monitoring and leak-detection systems, vapor-recovery equipment, fuel dispensers, submersible turbine pumps and remote monitoring services. DHR's estimated earnings for 2010 are $2.35 a share and it's also fairly cash rich, with $1.64 billion ($2.50 per share) in the bank. The stock pays a modest 8-cent dividend.
Veolia Environnement S.A. (NYSE ADR: VE), recent price $31.70 - Founded in 1853, Paris-based Veolia is one of the world's largest water infrastructure companies. It also has three other divisions, one of which - Environmental Services - focuses on wastewater collection, decontamination and recycling, as well as general sewage processing, waste management and pollution clean-up. The Energy Services and Transportation divisions provide added diversification, operating bus and suburban rail lines and providing management services for airports throughout Europe. With trailing earnings of $2.10 a share, and a Price/Earnings (P/E) ratio of 14.88, the stock seems reasonably priced, and the $1.23 dividend provides a yield of 4.57%.
Energy Recovery Inc. (Nasdaq: ERII), recent price $3.63 - If desalination is the wave of the future in water production, then ERII will likely be riding the crest of that wave. The California company designs and manufactures energy-recovery devices and pumps for use in seawater and brackish water desalination projects. It markets primarily to original-equipment makers and builders of small to medium-sized desalination plants in the Middle East and elsewhere around the globe. The company lost 5 cents a share over the past 12 months, but analysts predict a break-even for 2010 and a 2011 profit of up to 10 cents a share. [Note: If you'd prefer a less-focused approach to investing in desalination, both The Dow Chemical Co. (NYSE: DOW) and General Electric Co. (NYSE: GE) have growing divisions manufacturing the required equipment and plant-operating systems.]
Itron Inc. (Nasdaq: ITRI), recent price $62.35 - One of the clear leaders in the demand-side water efficiency sector, ITRI produces smart water and gas meters, electricity meters, automated watering systems, electronic water-usage and data-monitoring devices and ultrasonic water and heat meters, as well as a variety of other electrical and metering products, all of which it markets worldwide. Founded in 1977 and based in Washington state, Itron is expected to report earnings of $4.02 a share for 2010, up from $2.15 in 2009, with an increase to $4.33 in 2011. The company has a book value of $35.46 a share, but pays no dividend.
Lindsay Corporation (NYSE: LNN), recent price $71.29 - Based in Omaha, Neb., Lindsay is a leader in the design and manufacture of automated central-pivot, lateral and hose-reel irrigation systems used to increase or stabilize agricultural crop production while conserving water, energy and labor. It markets products internationally, including to China. Lindsay also has an Infrastructure division that supplies transportation departments and road-construction contractors, making everything from crash barriers to reflective pavement safety tapes. The company earned $1.83 a share for the fiscal year ended in August 2010, with $2.19 forecast for FY 2011 and $2.72 for 2012. The 34-cent dividend provides a yield of 0.52%.
Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE ADR: SBS), recent price $50.57 - If you'd like an international play as well as a water company, Brazil's Sabesp fits the bill. It provides water and sewage services in 365 of the 645 municipalities in the State of Sao Paulo (which is also a majority stockholder), serving 23.4 million people with water services through 7.2 million water connections. It also provides sewage services to 19.7 million people, with 5.6 million sewage connections, and offers other services including urban rainwater drainage and management, urban cleaning and solid waste management, power generation and conservation activities. The company earned $8.05 a share over the trailing 12 months, giving it a P/E of just 6.23, but the stock pays no dividend.
If picking one or two individual water-related investments out of the many available seems too daunting, there are several exchange-traded funds (ETFs) that can identify opportunities and provide diversification for you. Two of the top funds are:
PowerShares Global Water Portfolio (ETF), (NYSE: PIO), recent price $20.30 - PIO is based on the Palisades Global Water Index, which tracks a group of international companies that provide drinkable water, water-treatment systems and technology and services directly related to water consumption. The fund's equal-weighted portfolio is rebalanced and reconstituted quarterly, with current assets of $316.2 million. PIO, founded in June 2007, has provided a three-year total return of -8.15%, reflecting the impact of the economic slowdown on new water projects, but has yielded 1.36% over the past 12 months, and the stock is up 28.9% from its 52-week low.
Claymore S&P Global Water Index (NYSE: CGW), recent price $20.65 - CGW tracks the S&P Global Water Index, which consists of about 50 stocks traded on major world exchanges and selected based on the relative importance of the global water industry in the company's business plan. The index tries to balance representation from different segments of the water industry - 25 water utilities and infrastructure companies and 25 water equipment and materials companies. The fund normally invests at least 90% of its assets in common stock and American depositary receipts (ADRs) that comprise the Index. The fund, with $206.4 million in assets, reports a year-to-date return of 5.48% and a yield over the trailing 12 months of 1.03%.
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Larry D. Spears is a contributing writer for MoneyMorning.com
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