Fishing Unfamiliar Waters

By Gregory S. Davis | June 05, 2008 AAA

T. Boone Pickens, legendary hedge fund manager and oilman, began investing in a very liquid asset before the recent announcement of his intention to build the worlds largest wind farm. Pickens invested millions to secure water rights around his ranch in North Texas with the idea of supplying water from the Ogallala Aquifer to neighboring cities like San Antonio.

Individual investors who aren't looking to shell out millions for water rights may want to consider the PowerShares Water Resource ETF (AMEX:PHO). The exchange traded fund tracks the Palisades Water Index and it normally invests about 80% of its assets in American Depository Receipts. (For related reading, check out Water: The Ultimate Commodity.)

U.S. Water Reservoirs
Earlier this year many cities in the United States were facing drought like situations. The absence of rain brought reservoirs to extremely low levels and caused water restrictions to go into effect. On a global scale, the demand for water is increasing as the need to nourish individuals, support food crops and aid in the production of biofuels continues to grow.

Powershares Water Resource's Top 3 Holdings
Itron (Nasdaq:ITRI)
In August of last year Washington-based Itron acquired Actaris Metering Systems for $1.7 billion to become a world leader in electric meters, gas and water automated reading systems. It might not be very exotic, but it does fit the water and energy demand story. Last year Itron estimated the metering market to grow at a slow 3% to 5% pace annually given the slowdown in new construction in the U.S. Even with the slim prediction of future growth, Itron had $484 million in new orders for the first quarter of 2008 driven largely by its acquisition of Actaris. Itron's customers include Progress Energy and Southwest Gas Corporation.

Lindsay Corporation (NYSE:LNN)
Delaware-based Lindsay is a world leader in automated irrigation systems used primarily in the agriculture industry. Revenue for the three months that ended on Feb 29 increased 70% to $108 million from the previous year. In mid-March Lindsay stock climbed 18% to $90 on news of strong earnings driven by demand from farmers overseas. Lindsay's key international markets include France, Brazil, South Africa and China.

Veolia Environnement (NYSE:VE)
French Veolia Environnement is a world leader in water treatment and environmental services that include water management, energy management and transportation services. Its customers include municipalities and large industrial companies. Veolia's consolidated revenue rose 16.6% to 9 billion euros for the first quarter of 2008. New starts of commercial projects in China led to the increase. More than 50% of its revenue is generated outside of France. Several emerging markets, including Africa and the Middle East, are beginning to make significant contributions to Veolia's revenue growth. (For more on emerging markets, be sure to read Re-evaluating Emerging Markets.)

Water made clear
When a successful oilman turns his attention to water it probably makes sense for individual investors to take notice. Water is not the lead story today, but investor must plan to invest for tomorrow. The PowerShares Water Resource ETF is up 5% year to date.

For more on water, wind, and other environmentally conscious investments, check out Top 10 Green Industries, and Evaluating Green Equity Investments.

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