Building a Water Position
How would you like to go back in time and buy oil when it was trading at $40 a barrel? Or even lower? Some investors are kicking themselves by missing out on the huge run in oil prices over recent years. You may have an opportunity to get in early on a commodity that is even more important to our future than oil: water.
News surrounding a global water shortage has been increasing in intensity. This article is not here to make a case for a water shortage. There is plenty of information out there including hard statistics. The bottom line is more people on this planet than you think do not have access to safe drinking water.
Water is potentially the top obstacle for booming economies such as China and India. Jim Rogers, one of the most popular investors who continually promotes China, says that water is the top threat to continued growth in China. China’s government is set to spend loads of money on addressing this issue. How can you position your portfolio to make money on water? Let’s look at some potential investments.
General Electric (GE)
This company has been pouring R&D money into new water technologies. Furthermore, GE is heavily invested in expanding its presence in China. Since GE’s water division provides a very small chunk of its overall revenue, this is a great long term investment if you want minimal water exposure. With the stock trading near its 52-week lows, it could be a great buying opportunity of a company that has the resources and the direction to profit down the road from the world’s water problems.
Veolia Environment (VE)
One of the largest companies that helps provide clean water to over 67 million people. Veolia has 70% of its sales coming from outside the United States. I also like Veolia’s increasing presence in China. Like GE, this company is trading near its lows and has a nice dividend to help cushion any decline in share price.
Lindsay Corporation (LNN)
This stock will get you water and agriculture exposure as they sell agriculture irrigation equipment. With looming food shortages as well as water shortages, this company is poised for great returns.
Consolidated Water (CWCO)
One of the pure plays on water desalination. Water desalination is frequently brought up as a potential solution to the world’s water problems. This company has many risks associated with it, so do your homework before doing any buying.
The Claymore S&P Global Water ETF (CGW) and the PowerShares Water Resources ETF (PHO) are two possible water positions for your portfolio. These ETFs have positions in numerous companies exposed to various aspects of the water industries. I, personally, like CGW better because it is more internationally focused.
First, you need to do some more research on the global water shortage and the companies that are poised to benefit from such an environment. I like Veolia and GE because of the current share price and accompanying dividend.
The water play may take years to achieve gains. It is tough to say when we could see money start pouring into these companies. As young investors, we may be the generation that is right in the middle of a true global water crisis. I want to position my portfolio to take advantage of such a crisis.
Do you think water belongs in your portfolio? Join the discussion! Add your comment below and offer your insight.