Desalination Companies: Invest in the Future

In the rush of headlines about looming water shortages associated with climate change, increased population and falling water tables, many have been discussing options and looking to find the best investments to exploit the water crisis.

And, more times than not, desalination emerges as the potential solution to the world's water woes. But for all the hype and chatter surrounding this expanding industry, what, if any, are the best ways to play it?

The first wave of investing in desalination companies has come and gone. The available plays at that time--the first half of this decade--were bought up and merged into global conglomerates that knew exactly where the water industry was headed.

Zenon Environmental Inc. is a prime example. Their advanced membrane technology, used for wastewater treatment and desalination, made them one of the leaders in the fledgling desalination market of the early 2000s. From 2001 to early 2005 the stock rose more than 270% as they gobbled up large contracts in the US and Canada, and began to expand into Asia.

And at that point, the big boys had had enough. They were quickly bough out by GE and merged into its water division.

Since then, as I've reported before, investing in desalination stocks has offered few pure plays. One of the best ways to get in now may be through Consolidated Water Co. Ltd. (NASDAQ: CWCO).

I was bullish on that stock back in '07, when it was trading just above $30 and before Barron's warned that its shares could lose half their value if a dispute over desalination revenues was not settled with one of its largest customers, the government of the British Virgin Islands.

The dispute went on and shares fell to $24.60 on Christmas Eve. The stock has since started to rebound, and now may be a good time to pick up a few shares in this market of limited options.

But another option may be on the way.

Desalination IPO

IDE Technologies Ltd., a joint venture between Israel Chemicals Limited (ISCHF.PK) and Delek Group Ltd. (DLKGF.PK), may soon have its shares floated on the London Stock Exchange.

In fact, the initial public offering [IPO] was supposed to happen in November 2007, but was postponed because of "global market conditions."

Nonetheless, on December 30, it was announced that IDE won a $100 million contract to build a desalination plant in Australia, with construction to begin this year. And they've got plenty more experience under their belt.

In 2005, the company, along with Veolia Environment (NYSE: VE) and Dankner-Ellern, built the world's largest desalination plant in Ashkelon, Israel, capable of delivering up to 6% of Israel's water needs. In 2006, less than a year after initial production, it won Desalination Plant of the Year at the Global Water Awards.

And it doesn't hurt that IDE has its home in a country that is a world leader in desalination technology. Sam Hopkins, our international analyst, believes the area--along with the rest of the Middle East--will be a hotbed of desalination investment in coming years, and he says IDE is a leader in reverse osmosis technology.

Disclosure: none

Comments

[Daniel W]

One of the cheapest and best ways to invest in water--or energy--is, I believe, to invest in cotton.

--Daniel
danielwahl.blogspot.co.../

[Long-ShortGuy]

This is useful, as I've never seen anything before on desalination stocks. Problem is they don't seem to have much liquidity (ahem...).