13 Ways To Cash In On Water

jennifer aniston smartwater

The water sector has had a killer decade, beating the S&P 500 by 11 per cent annually since 2001.

Jefferies detailed the bullish prospects for blue gold in a big report.

Don’t think the $526 billion industry is all bottled water. Investors can buy into everything from pipes to chemicals.

Municipalities

Projected annual growth: 2 - 4%

2010 sales: $65 billion

Key factors influencing municipal demand for water treatment equipment include population growth, consumption of potable water per capita, and the need to fix or replace ageing infrastructure. Look also to improving standards of living in Asia, the migration of people from villages to cities and water scarcity.

Leading companies in municipal water include Pall Corporation.

Source: Jefferies

Water treatment chemicals

Projected annual growth: 2 - 5%

2010 sales: $14 billion

Water treatment chemical companies include those who produce coagulants, flocculants, corrosion, and scale inhibitors, biocides, antifoaming agents, adsorbents, fluoridation agents to name a few.

Ashland and Ecolab are two leading companies.

Source: Jefferies

Industrial

Projected annual growth: 3 - 6%

2010 sales: $61 billion

The industrial segment of the water industry is expected to grow 10 - 20 per cent in developing countries.

But expect political constraints to limit price hikes for utilities that provide fresh water and wastewater disposal.

Source: Jefferies

Pumps

Projected annual growth: 5 - 6%

2010 sales: $32 billion

Leading companies include Flowserve, which manufactures pumps, seals and valves for water management end-markets, and Gorman-Rupp, a $300 million manufacturer of pumps, pumping stations, castings and control equipment.

Source: Jefferies

Pipes

Projected annual growth: 4 - 7%

2010 sales: $53 billion

The U.S. faces significant infrastructure investment requirements over the coming decades and Jefferies recommends long-term plays on infrastructure companies. Stock picks include Northwest Pipe.

Source: Jefferies

Residential

Projected annual growth: 5 - 8%

2010 sales: $11 billion

A.O. Smith is the leading manufacturer of water heaters in the residential and commercial space in the U.S. The residential water heater business is largely replacement.

Pentair's principal products include residential and light commercial water pumps, filters, and filtration systems.

Source: Jefferies

Filtration

Projected annual growth: 5 - 8%

2010 sales: $22 billion

Leading companies include Pall, which supplies filtration, separation and purification technologies to the energy and water markets.

Source: Jefferies

Distribution

Projected annual growth: 5 - 8%

2010 sales: $56 billion

Investors will likely look for opportunities created by regulations that impact water distribution systems. The distribution segment of the water industry is expected to grow 10 - 15 per cent in developing countries.

Source: Jefferies

Irrigation

Projected annual growth: 6 - 8%

2010 sales: $11 billion

Micro or drip-irrigation is the most promising market, making companies like Monsanto a good bet. Irrigation projects have the most impact in the Middle East and Northern Africa, which account for more than 53 per cent of all water demand. South Asia is second with 36 per cent of all water demand.

Source: Jefferies

Valves

Projected annual growth: 6 - 9%

2010 sales: $48 billion

The repair and replacement of water infrastructure in the developed world has provided an opportunity for water investors. The EPA expects 45 per cent of existing infrastructure to be replaced by 2020 and this is expected to benefit companies involved in supplying valves.

This could make Flowserve Corp, which manufactures valves for the water management market, a good long-term play.

Source: Jefferies

Bottled Water

Projected annual growth: 6 - 12%

2010 sales: $104 billion

Bottled water represents a high-profile market, with an estimated $96-$100 billion in sales in 2010. In the U.S. there is more demand for bottled water than there is for alcohol and coffee. Consumer and regulatory backlash. however, is a perpetual risk.

Source: Jefferies

Desalination

Projected annual growth: 9 - 14%

2010 sales: $11 billion

Improved cost effectiveness and booming demand for water in a number of arid regions are driving growth in desalination demand to rates well above the overall water sector. Desalination equipment companies that would make good stock picks include Pentair, Energy Recovery, and Flowserve.

Source: Jefferies

Disinfection / Purification

Projected annual growth: 10 - 15%

2010 sales: $17 billion

Emerging purification systems which can lessen energy costs and increase throughput have an extremely receptive audience in an energy constrained world. Growth rates in the disinfection/purification subsector are expected to be amongst the highest in the industry.

Source: Jefferies

Remember when water used to be free...

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