Yesterday, I put a major distortion on your radar…
It’s happening in a sector that many people take for granted. And yet, it spells opportunity for savvy investors…
I’m talking about the water crisis in our country – and around the world.
If you read yesterday’s dispatch, you’ll know 1.4 billion people live in areas of high or extremely high water vulnerability. That’s according to the humanitarian aid organization UNICEF.
And here in the U.S., the water problem is reaching critical levels.
Today, I’ll show you why that is… And where the biggest moneymaking opportunities are for investors in this sector.
This 20-Year Drought Means Massive Distortion
One of the biggest distortions in the water sector is coming out of the Colorado River basin.
The Colorado River runs through Wyoming, Colorado, Arizona, Utah, Nevada, New Mexico, and California.
The river feeds into Lake Powell and Lake Mead, the two largest reservoirs in the country. But these lakes are now at critically low levels.
“Minimum power pool level” is the point at which all hydropower generation stops.
The U.S. Bureau of Reclamation (USBR) estimates we could see this level by 2026. In fact, there is a one-in-four chance Lake Powell could reach that level as soon as 2024.
The simple fact is we have been using more water than the river is capable of replenishing. The 20-year drought in the West has brought that fact home to everyone in the region.
The USBR says states within the region will need to conserve between 2 and 4 million acre-feet of water in 2023. That’s to ensure the dams maintain minimum levels.
That means some very tough decisions about water use in the affected states.
Huge Investment in Water Infrastructure
So it’s clear we need more water. But in order for this to happen, we also need massive injections of investment in water infrastructure.
Investing in water is investing in our collective future. It’s that simple. And it’s necessary.
We’ve seen an increase in government bills and contracts going to the water and wastewater space in recent years.
In December 2020, the bipartisan Water Resources Development Act of 2020 was signed into law. It will direct $9.9 billion in new federal investments into water infrastructure projects across the country.
In April 2021, the Senate passed the Drinking Water and Wastewater Infrastructure Act of 2021. This bipartisan bill allocates $35 billion toward state water infrastructure programs.
In November last year, the U.S. House of Representatives passed the Infrastructure Investment and Jobs Act with bipartisan support. President Biden signed it into law on November 15, 2021.
The bill’s price tag came to $1.2 trillion. Of that, $55 billion was earmarked to expand funding for water investments. That means improving access to drinking water, as well as wastewater and stormwater infrastructure.
And last month, the House passed another bipartisan water infrastructure bill – the $25 billion Water Resources Development Act of 2022.
I expect this will also get signed into law. And that it will bring more funding for the water industry.
Following the Money from Washington to Wall Street
As always, wherever government money flows… Wall Street is sure to follow.
And the sector’s track record is sure to make it even more attractive to investors…
In recent years, companies in the American water industry have grown their share price. Here’s a snapshot of how the sector has fared so far in the 21st century…
This chart compares the water sector (represented by the Dow Jones U.S. Water Index) and the broader market (represented by the S&P 500).
The water sector has outperformed the S&P 500 for more than the last decade. In fact, since February 2000, it has outperformed the broader market by 99%.
That’s incredible when you think about it. Because we don’t really tend to think about water as an investment.
But you should. I expect outsized demand for water stocks in the coming years. Water crises will force investors to reevaluate this most valuable, basic resource.
The global water and wastewater treatment market is forecast to grow from $302 billion in 2022 to $489 billion in 2029. That’s more than 60%.
Investors can capitalize on this trend by investing in utilities or companies that desalinate, recycle, conserve, purify, and distribute clean water.
One way to get broad exposure to this sector is through the Invesco Water Resources ETF (PHO). It has $1.7 billion in assets under management and average daily volume of $3.9 million. And it holds 37 names across the water sector.
Editor, Inside Wall Street with Nomi Prins
P.S. The Invesco Water Resources ETF is a great place to start your search. But individual companies can offer even more potential upside. In my Distortion Report advisory, I just recommended my favorite name in the water sector.
It’s a U.S. company that provides a safe, reliable supply of water to millions of Americans. And it’s investing in the infrastructure needed to future-proof our water supply for years to come.
This company’s share price could climb by up to 33% in the next year. Plus, it pays solid dividends, to boot. To get the name of this company, if you’re not paid-up yet, learn more about a Distortion Report subscription right here.