A recent Wall Street Journal article cites some eye-popping, though perhaps debatable, stats about the amount of water used to make common products. A cup of coffee takes roughly 35 gallons. A cotton T-shirt,700 gallons of water to produce. A hamburger? 630 gallons — more than three times the amount the average American uses every day for drinking, bathing, washing dishes and flushing toilets. http://online.wsj.com/article/SB123483638138996305.html. The article also cites a UN report that two-thirds of the world’s population is projected to face water scarcity by 2025 and a GAO report that 36 states anticipate shortages by 2013.
Though there have always seemed to be dire predictions of water shortages, major industry players are now taking the threat seriously. Heavy water users have already begun to look into water offset projects (see our February 23 interview with Neil Eckert of Climate Exchange) and a new consortium had its first summit in Miami last month (http://www.water-footprint-usa.com/index.asp). The Pacific Institute suggests that corporations and investors should consider water accessibility as a key risk factor and notes that Coca Cola, which lost access to groundwater at its Indian bottling operations, now discloses water usage in its financial reports (http://www.pacinst.org/reports/business_water_climate/index.htm).
Most public companies in the water industry are utilities, but here are some smallcaps that have technologies and skill-sets that merit a closer look for anyone interested in this space.
Omaha-based Lindsay Corp. (NYSE:LNN, http://www.lindsaymanufacturing.com/) makes and sells automated irrigation systems to the agriculture industry and has a presence throughout the world. Its stock rode the commodity and ethanol bubble to $131 in May of 2008 and now trades at $23.70, a few dollars above its 52-week low. This might be a solid entry point for an established leader on the right side of a macroeconomic certainty – the need to feed more people more efficiently.
Vancouver, WA-based Northwest Pipe Company (Nasdaq:NWPX, http://www.nwpipe.com) manufactures and markets large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, primarily related to drinking water systems. Last month, the company pulled in record net income of $32.3 million for 2008, compared to $20.8 million in 2007. Yet, at $23.17, it trades at just over a third of its 52-week peak. Should draw some attention, and the stock trades fairly well, at 170,000+ shares per day.
Water, water everywhere but not a drop to drink? Energy Recovery of San Leandro, CA (Nasdaq:ERII, http://www.energyrecovery.com/), Inc. manufactures and markets seawater desalination products. The stock was downgraded by Dougherty and Company last week, but the stock is less than a year old and represents a rare pure play in a market dominated by GE. It is trading at $6.02, just less than half its high of $13.25, with a market cap of $302 million and trading volume of a hair under 200,000 shares a day.
Tim Jones has been a noted speaker on the issue of water management for several years and his consulting firm, Innovaro, counts some of Europe’s largest companies as clients. The search for efficient and sustainable water usage can be expected to be a growing corporate concern. Innovaro is part of Tampa-based innovation consulting firm UTEK* (Amex:UTK, http://www.utekcorp.com/) whose tech transfer group could be tasked with the challenge of finding promising water technology licensing opportunities for corporate clients.
*client of Allen & Caron, publisher of this blog