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As the global population continues to grow, so does the demand for water. Since water is a finite resource, business that are able to collect, treat, and provide may be promising investments.

To create the list below, we started with a universe comprised of water related business stocks pulled together from the S&P Global Water Index and the Calvert Global Water Fund.

We then screened for stocks that have reported rising gross profit margins over the last four years (based on annual filings). For each stock, we describe the relevant time interval and change in gross margin.

Finally, we looked for stocks with strong sales trends by comparing growth in revenue to growth in inventory over the last year. We screened for stocks with positive sales trends, with faster growth in revenue than inventory over the last year. Since inventory represents the portion of goods not yet sold, faster growth in revenue than inventory is considered an encouraging sign.

The List

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Do you think these stocks will continue to see a rise in their profits? Use this list as a starting point for your own analysis.

1. Danaher Corp. (NYSE:DHR): Designs, manufactures, and markets professional, medical, industrial, and commercial products and services primarily in North America, Europe, and Asia/Australia.

  • Market cap at $42.77B, most recent closing price at $61.74.
  • Diluted normalized EPS increased from 1.93 to 2.58 during the first time interval (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). For the second time interval, diluted normalized EPS increased from 2.58 to 3.15 (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31). And for the last time interval, the EPS increased from 3.15 to 3.36 (12 months ending 2012-12-31 vs. 12 months ending 2011-12-31).
  • Revenue grew by 2.98% during the most recent quarter ($4,444.7M vs. $4,316.22M y/y). Inventory grew by -1.2% during the same time period ($1,866.5M vs. $1,889.08M y/y). Inventory, as a percentage of current assets, decreased from 28.87% to 23.6% during the most recent quarter (comparing 3 months ending 2013-03-29 to 3 months ending 2012-03-30).

Danaher's Water Quality business handles analysis and treatment in addition to providing equipment and disinfection systems to help analyze and manage water quality. The Water Quality business falls under Danaher's Environmental segment, which, per Money Morning, accounts for roughly 23% of the conglomerate's profits. Compared to the first quarter of 2012, first quarter 2013 revenues in this segment rose 4.5% to $725 million, with Water Quality core revenue growing at an undisclosed low single-digit rate.

It is worth noting Danaher's Water Quality and Product Identification businesses experienced double digit growth in China and the Middle East, ultimately offsetting the flat demand in the United States and other developed markets. Water scarcity is a real concern in China as Fortune Magazine reports that the country's development and growing water demand could lead to a crop shortage by 2030, so Danaher's recent performance is encouraging.

2. Lindsay Corporation (NYSE:LNN): Designs, manufactures, and sells automated agricultural irrigation systems that are primarily used in the agricultural industry to increase or stabilize crop production while conserving water, energy, and labor in the United States and internationally.

  • Market cap at $1.04B, most recent closing price at $81.02.
  • Diluted normalized EPS increased from 1.11 to 1.98 during the first time interval (12 months ending 2010-08-31 vs. 12 months ending 2009-08-31). For the second time interval, diluted normalized EPS increased from 1.98 to 2.9 (12 months ending 2011-08-31 vs. 12 months ending 2010-08-31). And for the last time interval, the EPS increased from 2.9 to 3.38 (12 months ending 2012-08-31 vs. 12 months ending 2011-08-31).
  • Revenue grew by 32.85% during the most recent quarter ($175.54M vs. $132.13M y/y). Inventory grew by 13.84% during the same time period ($78.07M vs. $68.58M y/y). Inventory, as a percentage of current assets, decreased from 25.07% to 21.26% during the most recent quarter (comparing 3 months ending 2013-02-28 to 3 months ending 2012-02-29).

Lindsay Corporation had record revenues of $175.5 million during its second quarter of fiscal 2013, reflecting a 33% percent increase from the same quarter last year. The company also saw an astonishing 82.5% rise in its backlog, ending the quarter with $159.3 million in unshipped orders versus $87.3 million back in 2012. Higher demand for irrigation in the U.S. and the Middle East - where the company has a $39.1 million contract - led to the backlog, which the company expects to reduce substantially throughout the remainder of the fiscal year.

The irrigation system designer/manufacturer benefited immensely from the 2012 drought, which was the worst to hit the U.S. in 50 years. However, there is no guarantee that another drought will impact the American farming industry similarly in the future, so the long-term viability of the company's domestic performance remains to be seen. The Middle East's water scarcity issues make it ideal for irrigation, so it's worth monitoring Lindsay Corporation to see how its current Middle East contract pans out.

3. Pall Corp. (NYSE:PLL): Manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide.

  • Market cap at $7.6B, most recent closing price at $68.27.
  • Diluted normalized EPS increased from 1.82 to 2.01 during the first time interval (12 months ending 2010-07-31 vs. 12 months ending 2009-07-31). For the second time interval, diluted normalized EPS increased from 2.01 to 2.53 (12 months ending 2011-07-31 vs. 12 months ending 2010-07-31). And for the last time interval, the EPS increased from 2.53 to 2.82 (12 months ending 2012-07-31 vs. 12 months ending 2011-07-31).
  • Revenue grew by 3.5% during the most recent quarter ($662.46M vs. $640.05M y/y). Inventory grew by -9.2% during the same time period ($404.65M vs. $445.63M y/y). Inventory, as a percentage of current assets, decreased from 25.32% to 19.83% during the most recent quarter (comparing 3 months ending 2013-01-31 to 3 months ending 2012-01-31).

During the second quarter of fiscal 2013. Pall Corp.'s sales increased by 3.5% to $662.5 million compared to last year's $640 million. The company's Industrial segment, under which water filtration falls, saw a decrease in sales this past quarter, with municipal water sales declining by 19%.

Pall Corp has steadily expanded its presence in the Middle East this past year, starting with a partnership with King Abdullah University of Science and Technology in Saudi Arabia focusing on water treatment amongst other areas of importance. Last month, the filtration equipment maker announced the opening of its second office in the region, citing growing demand for fluid management solutions.

*Accounting data sourced from Google Finance. EPS data sourced from Yahoo! Finance. All other data sourced from Finviz.

Source: 3 Water Stocks With Rising Profits And Encouraging Inventory Trends