There’s one thing even drier than the soil, reservoirs and mountains in the 12 states declared natural disasters by the U.S. government last week: the budget needed to deal with all the repercussions of severe droughts, including the imminent wildfires.
The drought of 2014 is making history, so there’s no telling what the final price tag might be.
A lack of water makes it nearly impossible to grow crops without the help of costly irrigation systems. So, farmers suffer.
Sparse snow packs keep reservoir levels far below normal, forcing state officials to speed up lengthy projects to update water infrastructure and creative pumping solutions. So, cities suffer.
Through August 2013, 33,000 wildfires spanning 5,300 square miles destroyed 960 homes and 30 commercial buildings at a cost of nearly $1 billion. Now that Round 2 is of the disaster is underway, federal, state and local governments desperately need firefighting equipment and manpower. So, homeowners and fire crews suffer too.
It’s particularly hard when natural disasters strike, whether they come fast and furious like Hurricane Sandy or the Northridge Earthquake, or slow and subtle like droughts. There are no winners. However, when companies supply services or products to help counter the devastating effects of disaster, the investment community calls that opportunity.
Companies involved in the business of farming, water efficiency and firefighting are sure to be affected by the drought of 2014.
Here are stocks to watch:
Here are a couple of companies that provide irrigation equipment, specifically as it relates to efficiency. Every drop counts during a drought, and Lindsay (LNN) and Valmont Industries (VMI) both manufacture irrigation equipment for more than two-thirds of the U.S. harvest as well as in key regions in Australia, Africa and Canada.
Although a combination of increased rainfall in some regions and higher crop production didn’t bode well for either company in 2013, each added about $45 to their stock prices in 2012 when the drought took hold.
As states, especially California, try to solve the long-term water shortage problem, water utility companies and equipment providers should be getting quite a few calls from Governor Brown and Co. Here are a few in the small-cap arena: American States Water Company (AWR) is a public utility company that purchases, produces, distributes and sells water in California. The $526 million serves approximately 250,000 water customers. One billion-dollar Franklin Electric (FELE) designs, manufactures and distributes groundwater and fuel pumping systems, electronic controls and related parts and equipment. Consolidated Water Company (CWCO) uses reverse osmosis technology to produce fresh water from seawater.
The federal government just announced that it will allot $3.9 billion to California to fight wildfires in 2014. Some of that may very well go to: Erickson Air-Crane (EAC), the builder of Aircrane helicopters with 2,650-gallon fire suppression systems and detachable water tanks. It just entered into a multi-year $60 million contract with National Aerial Fighfighting Centre in Australia, another continent under fire. It is also the largest provider of heavy heli-tanker aircraft to the U.S. Forest Service. In Sept. 2013, Air-Crane signed a $5.6 million contract to manufacture fabricated aircraft assemblies for a unit of United Technologies (UTX). Prior to that EAC entered into a five-year agreement with Los Angeles County, valued annually at $2.7 million.