The Water Trade: How to Invest in This Megatrend

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Commodities like oil and gold get a lot of press.  Both are critical to the global economy and have been a source of investor profits for years.  It’s easy to trade in either; you can directly invest via an ETF or buy shares in a company dedicated to production.

Water, however, is much more difficult to play.  We tend not to think too much of it, as its access for most of us is as simple as heading to the sink and turning on the faucet.  Sure there’s an underlying utility like American Water Works (NYSE: AWK) that supplied it to us.  Investors have often turned to water utilities like American Water to get exposure to the sector.  They've bid up shares of that company to a rather bubbly 20 times earnings. 

Investing in a water utility is one way to play the trend, that’s of course if you live in a society that has access to fresh drinking water.  Not everyone is so lucky.  Fresh water is the lifeblood of the human race and yet it’s a luxury for many.  While we don’t think twice when the waiter brings us a glass that we hardly touch, deep down we know its value.  It’s why so many fight to ensure that this precious resource is protected.

It’s a reason why the energy industry has taken so much heat over groundwater contamination as well as the sheer volume of water needed to frack a well.  The industry has really made great strides over the past few years to ensure the safety of our water.  It’s also worked hard to recycle and reuse water.

It takes at least 4 million gallons of water per well to produce gas out of the Barnett Shale.  Production companies like Devon (NYSE: DVN) are turning to recycling in an effort to be a better steward of the resources it uses.  The company, along with its recycling partner Fountain Quail Water Management, has installed a mobile recycling unit which has enabled the company to recover 500 million gallons of water.  That’s enough to frack 100 wells.

Devon is not alone: Chesapeake (NYSE: CHK) has its own water recycling initiative called Aqua Renew.  Like Devon, the program was birthed in the Barnett.  Chesapeake has taken the process up to its Marcellus fracking operations and is able to filter and reuse more than 10 million gallons per month.  The company estimates that it’s saving an average of $12 million a year thanks to the process.

Cleaning up toxic wastewater from fracking is becoming a big business.  It’s estimated that an $18 billion industry is emerging to ensure the energy industry can keep its act clean.  Not only are production companies spending vast sums to recycle but other industrial titans are getting into the act as well.  GE (NYSE: GE) has developed a Mobile Evaporator that can go from well to well and clean around 50 gallons of wastewater each minute. 

The industrial conglomerate has developed a portfolio of products and technologies around water.  From water treatment chemicals to processing equipment, the company has some of the most advanced water solutions available.  However, it’s still a smaller part of its overall business mix.

While we’re spending billions to ensure our drinking water is crystal clear, there are still so many out there without access to clean drinking water.  Though we can simply walk to the sink and turn on the tap to fill a glass, many walk miles for that same glass of water.  Investing in a company like American Water Works might pay you a 2.7% dividend today, but where can you earn a better return for tomorrow?

It’s not in wastewater companies or industrial conglomerates.  None offer the direct investment in the future of water.  Those companies don’t provide water to those who need it to survive. 

That's why I’d encourage you to take a step back this holiday season and consider investing in the megatrend of water in a different way.  Consider the impact of investing directly in providing water to those who so desperately need it. 

The Motley Fool is working with Charity: Water in an effort to change the lives of 1,000 people by providing safe, clean drinking water.  Instead of using that extra liquidity in your portfolio to invest in the water trade, why not invest in saving a life.  Click here to learn more about this exciting project to bring water to those who really need it.


latimerburned has no positions in the stocks mentioned above. The Motley Fool owns shares of Devon Energy and General Electric Company and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, and short JAN 2014 $15.00 puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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