Xylem Inc (XYL), American Water Works Company Inc (AWK), Siemens AG (ADR) (SI) – Water: Not a Drop to Drink, but Plenty of Money to Be Made

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Xylem IncWhether you know it or not, the world is facing a severe global water crisis.  Expanding demand for water has placed the natural resource under severe strain.  This high demand for water use is pulling a vacuum on the water industry, presenting an appealing long term investing opportunity.  In this article, I’ll outline the water crisis and three companies that are well-positioned to capitalize on this vacuum.

What’s the deal?

The global water crisis is best summarized in a series of quantitative facts, so here we go!  Of the global water supply, only 0.3% is available for human consumption.  With an exponentially increasing population, the demand for this finite amount of water is skyrocketing.  Water.org states that:

Women spend 200 million works hours daily to provide water for their families.

780 million people lack access to clean water.

3.4 million people die from a water related disease each year.

The water crisis strikes domestically as well.  Expanding industrial use in nuclear cooling, hydrofracking, and ever-increasing agricultural use is further increasing the water demand.  The American Society of Civil Engineers reports in the 2013 Report Card for America’s Infrastructure the following investments are necessary to repair American water infrastructure:

$21 billion for dam repair

$100 billion for levee repair

$15 billion in wastewater treatment system repair

$1 trillion in drinking water infrastructure repair

This rings in a total of $1.136 trillion required in U.S. government investment.

Now what?

The serious need for innovation in water conservation and supply and investment in water infrastructure has presented a long term profitable investing opportunity. The water industry is projected to increase from (2007) $522 billion to $961 billion by 2020.  This would place the water industry at a higher valuation than the global airline industry.  So, how can investors like you take advantage of this opportunity?

1. Xylem

Xylem Inc (NYSE:XYL) spun off from ITT Corp (NYSE:ITT) in 2011.  Xylem Inc (NYSE:XYL) offers a wide range of water products and  services including, but not limited to, the following:

Water quality logging and monitoring systems

Wastewater processing solutions

Large scale water transporting and handling systems

Desalination equipment

Xylem Inc (NYSE:XYL) is positioned to tackle the global water crisis through more than thirty individual markets, adding a safety net of diversification to an already appealing investment opportunity.

With 63% of revenue coming from international markets, and 20% of revenue coming from emerging markets, Xylem Inc (NYSE:XYL) has shown a commitment to addressing the crisis head on.  Xylem has a reasonable P/E of 19.45 and offers a 1.6% dividend yield.  Xylem Inc (NYSE:XYL) stock has traded flat for 2013, but it has just over $500 million in cash, and the shakedown from the spinoff is nearly complete, so future stock growth looks promising.

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