California is the poster child for the nation’s water shortage, but the affliction affects several regions of the country. It’s a difficult and frightening problem, but the good news is that there are some publicly-traded water companies that offer real solutions.
Water stocks clearly aren’t the sexiest of opportunities compared to, say, a cure for cancer or the latest smartphone technology. Water is a commodity most people rarely even think about. We assume it flows freely and infinitely every time a faucet handle is turned. But the day when some people turn the handle on the sink and nothing comes out may be close at hand.
Water Shortage Reality Check
Giving credit where it’s due, MarketWatch columnist David Weidner recently wrote one of the best wake-up calls on the water shortage. Though his message was specifically about California’s failed efforts to conserve water (there’s only about a year’s worth of water left in the state’s reservoirs), it’s not just an issue for California. Texas, Kansas, Oklahoma, and a handful of other states all have more than mild water shortage concerns.
The obvious question: How did we as a nation let ourselves get into such a situation?
One answer is that we as a nation have a penchant for kicking the can down the road. Also, the business of securing, processing and delivering water is complicated and messy. There are a lot of moving parts and a lot of players — utility companies, regulators and municipalities. The arrangement is not well designed for real problem-solving.
But a crisis is upon us and we’re going have to rely on technology and know-how to solve it. That’s why water stocks are hitting their stride.
Water Stocks to Consider
Most investors looking to buy a water stock first consider water utility names like SJW Corp. (NYSE:SJW) or Aqua America Inc. (NYSE:WTR). While these utility names are mostly just middlemen, getting water from point A to point B after processing it, utility companies effectively have a legal monopoly in their respective markets. Any infrastructure costs they incur to ramp up water supply lines is ultimately shouldered by consumers and taxpayers.
But WTR, SJW and their peers aren’t the only — or even the best — way to play water stocks.
Another option is to buy the companies that fix the aging water mains and leaky pipes. The 2013 Infrastructure Report Card created by the American Society of Civil Engineers figures the nation will need to spend about $1 trillion over the course of the next decade to meaningfully fix our water infrastructure problems.
Infrastructure Plays
One company that repairs leaky pipes — and does it much less expensively than traditional infrastructure plays — is Insituform, a subsidiary of Aegion Corp. (NASDAQ:AEGN).
Insituform has devised and patented a method of inserting a flaccid, resin “tube” into a failing water main, and then inflating and curing it in place to serve as not only a new pipe liner, but a structure to hold the old pipe intact and leak-free.
Investors looking for this kind of holding can’t invest directly in Insituform and Aegion has a handful of other divisions. They’re all infrastructure-related though, so taking a stake in the even-bigger infrastructure problem the United States is facing makes sense.
Of course, other major solutions are required, as it could take decades to repair the state’s crumbling water infrastructure. Flexible Solutions International, Inc. (NYSEMKT:FSI) is an off-the-beaten-path player that is already up and running. Its WaterSavr additive prevents surface evaporation of lake and pond water by as much as 35%, meaning farmers have more of it to use when watering their crops. Keep in mind, although FSI is interesting in terms of technology, it’s also a tiny micro-cap, boasting a market cap of only $17 million and a share price of only $1.28. Tread lightly, if at all.
On a grander scale, the state needs more water. That’s where a name like Tetra Tech, Inc. (NASDAQ:TTEK) comes in. It offers a wide array of resource-management services and infrastructure-construction management services and has a wealth of experience in lake and reservoir management. Most important, Tetra Tech is building desalination plants in California right now. Although they are massive projects, desalination may be California’s only real long-term water shortage solution.
Bottom Line for Water Stocks
The point is, there are several ways to own water stocks outside of utility names like SJW or Aqua America. It’s a solid opportunity as water shortages worsen every day.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
