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Dale Jackson

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Liquid assets

Dale Jackson

 

“Water, water everywhere and not a drop to drink”. The Rime of the Ancient Mariner must have been going through the minds of researchers at UBS Wealth Management when they concluded in a report last month that global warming is making potable water a “key investment opportunity.”

Rising global temperatures are reducing the Earth’s supply of fresh water - much of it stored and regulated in the form of accumulated ice and snow concentrated at the poles. Think of it as nature’s basement freezer. To make matters worse scientists say more water will fall in the form of rain rather than snow. All that rain and melting ice is expected to fill natural reservoirs to capacity sooner than normal, with the overflow contributing to rising ocean levels.

One the surface it would seem the Earth will be awash in water but in fact a dwindling portion of the world’s liquid assets will be fresh.

The true value of water has not really hit the average investor yet but some of Canada’s largest pension plans have already tapped into its investment potential. Late last year the Ontario Teachers Pension Plan closed a deal on the $588-billion acquisition of Northumbrian Water Group, a major water utility in the north of England. The investment arm of the Canada Pension Plan has also been pouring billions of dollars into Britain’s rusting water infrastructure, which has been in private hands for over 15 years.

Currently direct investment opportunities in water are rare and risky. There are nearly 100 publicly traded stocks in North America that either dabble in water or go head-first into water treatment or supply. One company listed on the TSX Venture Exchange is H20 Innovation (2000) Inc. The Quebec City-based company develops, manufactures and markets products intended for drinking water production and wastewater treatment. The stock, which trades for less than two dollars per share on very low volume, had a huge runup in late January when it became the first North American company to list on the EuroNext Exchange in Paris. Most of those profits were trimmed in the days that followed but it does highlight the volatility of some water pure-plays.

Another penny water-stock that trades on the Venture Exchange is Calgary-based Arrowhead Water Products. Arrowhead specializes in the production and sale of large format bottled water. Most of its revenue is generated through the sale and rental of water coolers throughout Western Canada.

One Burnaby, BC-based aerospace company that focuses on aircraft water treatment had a 33 per cent runup in one day in early February - bringing the stock to an all time high of 16 cents. International Water-Guard Industries Inc. develops and implements full water system solutions, and last June filed a patent infringement lawsuit against Bombardier.

One Canadian success story in the water business is Zenon, which has become a world leader in advanced membrane products for water purification and wastewater treatment to municipalities around the world. In 2003 Zenon received the prestigious Stockholm Industry Water Award and just last year was acquired by General Electric.

General Electric’s involvement in the water business shows how the bigger players with deep pockets are sitting up and taking notice. GE has long been involved in electricity generation but is increasingly diversifying into other areas such as aircraft engines, chemicals and water treatment systems.

Another big company that seems to have its fingers in every pie imaginable - including water - is 3M. In addition to electronics, transportation, food service health care and material products 3M has a large stake in water purification products.

Investing in large cap companies with interests in water could be the safest bet for anyone wanting exposure to the sector. Investors looking to get into pure-play water stocks really need to do some digging. There are several small- to mid-cap water related companies that list on major U.S. exchanges that trade on fairly stable volume levels.

Dale Jackson has been a producer at Report on Business Television since its launch in September 1999.

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