BofA Securities thematic investing strategist Haim Israel published a 185-page primer on the ongoing global fresh water shortage. The statistics are alarming and this leaves the companies involved with improving the situation with a lot of work to do.
Mr. Israel began by emphasizing that thanks to a rising worldwide population and improving standards of living, water demand is up 40 per cent since the early 1980s and is set to climb a further 25 per cent by 2050. The supply of fresh water, on the other hand, has declined by more than half since 1970 according to the World Bank.
It gets worse. Demand for water increases by 1.7-times population growth and the global population is not forecast to peak until 2050. Urbanization, a largely planet-wide trend, also drives water demand.
Current manufacturing trends use water extensively. The strategist recounts that the production of one t-shirt requires an amount of water equivalent to three weeks’ worth of daily showers. One kilogram of steak takes 3.5 months of showers. Data centers behind the artificial intelligence revolution are already the 10th-largest water consumers in the United States, requiring one litre of water for every 40 commands of code. Meanwhile, U.S. infrastructure is decrepit – a water main breaks somewhere in the country every two minutes.
The strategist believes that global water infrastructure can be addressed at a cost of about 1 per cent of GDP, encompassing efficiency gains involving utilities, industrials, engineering and technology companies. In an accompanying report, Mr. Israel’s colleague Eric Lopez outlined the specific stock opportunities arising from water demand.
In the utilities sector, Hong Kong-based Guangdong Invest was highlighted. America’s Flowserve Corp. and Rotork PLC were listed among infrastructure-related opportunities and engineering giant Aecom Technology Corp was also included. Water purification and filtration specialist DuPont de Nemours Inc. and Arkansas-based Montrose Environmental Group Inc. were also stressed as beneficiaries to the trend.
This is another example of a trend that will take a long time to play out and investors should not feel compelled to buy any of these stocks until they’ve done their research and tracked the course of water-based revenue and profit growth. Over the long term, however, it does appear to be a promising area for investment.
-- Scott Barlow, Globe and Mail market strategist
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