America is finally starting to get the hint that it can't continue to consume energy in such a wasteful manner. One example of this newfound religion is the tankless water heater. Invented in Germany in 1895, Robert Bosch GmbH sells almost 1 million of them in Europe annually. Available in the U.S. since 1979, I thought I'd look for some public companies that manufacture these energy-efficient water savers. As it turns out, most of the big players in the North American market are either German or Japanese. Fear not, we do have some U.S.-listed subjects for this article. Read on and I'll fill you in.

IN PICTURES: 10 Insurance Tips For Homeowners

More Expensive
Consumer Reports suggests that the energy and water savings you gain from using a tankless water heater aren't worth the extra cost as they are two to three times as expensive to purchase as an ordinary water heater. What Consumer Reports doesn't take into account are two important factors. First, selling more units each year will lower prices over time, making them much more affordable. Second, if we don't do what needs to be done today to curb our energy and water use, it won't matter how cheap they are. We'll be six feet under. Americans aren't that dumb. If the Europeans can figure it out, so can the United States. The market will grow. It's only a matter of time.

Buy American
A.O. Smith (NYSE: AOS) is the largest manufacturer of water heaters in North America. In 2008, residential water heater sales accounted for $945 million or 65% of its overall sales. The remaining 35% comes from selling electric motors, where it's the fourth-largest producer in North America. Interestingly, it estimates that 70% of its commercial and residential water heater sales are to replace older units. Only 15% comes from new home construction, which reduces the impact of recessions. Not content to rest on its North American laurels, it's headed overseas to China and India. Starting in 1995, it's now one of the top two sellers of residential water heaters in China, generating $187 million in sales in 2008, up 27% from 2007. In September, it paid $77 million for Tianlong Holding Ltd., a small but significant acquisition that gets the company into the global water technology business, a $425 billion industry with significant competitors including 3M (NYSE: MMM), ITT (NYSE: ITT), Pentair (NYSE: PNR) and many more. It's not going to be easy, but I think that's the way A.O. Smith likes it. Now firmly established in China, it plans to conquer India as well. Go for it. Just don't forget the red, white and blue.

The Other Guy
You may have heard of the other North American player in the tankless water heater market. It's none other than General Electric (NYSE: GE). Apparently they're made in Japan, although it recently announced that starting in 2011 it would be making its new hybrid water heater at its 1,000-acre appliance park in Lexington, Ky. GE can paint this as a patriotic move, but it wouldn't have happened if there weren't energy rebates available through state-run Energy Star programs made possible by $300 million from the stimulus plan. CEO Jeffrey Immelt can say all he wants about how important U.S. manufacturing jobs are to his company, but the reality is he's probably going to sell the appliance division - a ball and chain that contributes just 6.5% of total segment revenues and 1.4% of total segment profits - as soon as the credit markets allow. Sure, we're talking billions here, but for one of the world's largest companies it's a drop in the bucket. It'll be gone soon enough.

Bottom Line
Given the shortage of American companies participating in the tankless water market, it's amazing to me that an attractive company like A.O. Smith actually still exists. It pays a small dividend (every year for the last 40), and although its share price is close to a 52-week high, this is one of those stocks you stick in a drawer and pull out at Christmas sometime down the road. I guarantee you'll be happy with the gift to yourself. (For more, see What Does It Mean To Be Green?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  2. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  3. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  4. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  5. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  6. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  7. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  8. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  9. Savings

    The Worst Financial Problems Ultra-High-Net-Worth-Individuals (UHNWIs) Face

    Understand how the problems of ultra-high-net-worth individuals (UHNWIs) are different from ordinary problems, and identify the unique financial challenges they face.
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>

You May Also Like

Trading Center