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One of my major investment themes for the next decade is the growing water shortage issue and need to upgrade the global water infrastructure. Many will not consider water a commodity, but I sure do and believe it can become as important as oil in the years ahead. Oil is important to everyday life, but without water humans cannot live very long.

The water investment theme is not new, but it still has yet to gain traction as a long-term investment option. Investors looking to take advantage of the billions that will be spent on water investing have several options. There are the water utilities in the US and abroad, the water infrastructure plays, and the secondary water stocks (example: valve makers, land owners). Through the first two months of 2008, the Dow Jones Water Utilities Index has had a rough year; down 10%. The PowerShares Global Water ETF (NYSEARCA:PIO) has not fared much better, off 8.5% through the end of February.

Even though the water benchmarks had a rough year, there have been individual stocks that have done well. I will take a look at some of the winners and losers and analyze them at their current levels.

The Good

Flowserve (NYSE:FLS) – One of the big winners this year (+13%), FLS is a fluid handling company. The stock supplies valves, pumps, seals, and more for the water industry as well as the chemical and energy arenas. A strong earnings report in late February helped the stock run to a new all-time high. A pullback to the $100-$102 area would be considered a buying opportunity.

Northwest Pipe Company (NASDAQ:NWPX) – Makes welded-steel water transmission pipes that are used to transport water. As the water infrastructure in the US continues to deteriorate, the government will be forced to spend billions on upgrades and NWPX should be a major beneficiary. Technically the stock has been in a solid uptrend for years and has shown great relative strength versus the overall market.

Lindsay Manufacturing (NYSE:LNN) – The combination of worldwide droughts and farmers swimming in cash has helped this maker of irrigation equipment. The stock closed out February at a new all-time high and is up 11% in the first two months of the year. A pullback to the low $70's would be an ideal entry point.

SABESP (NYSE:SBS) – Brazil's largest water company that is majority-owned by the government of the state of Sao Paulo. The stock remains in a long-term uptrend and broke a five-month downtrend in late February, signaling a new buy signal. With the company trading at 9x 2008 earnings, the fundamentals are also attractive.

The Bad

PICO Holdings (NASDAQ:PICO) – In the Western US, water is considered the "blue gold". PICO owns the water rights to a large portion of Nevada and Arizona through Vidler Water Company. Another portion of the company owns over a half million acres of land in Nevada, making it one of the largest private land owners in the state. PICO is similar to a mining company that owns land with resources on it; the only difference is this time the resource is water. The stock has been in a downtrend for months, but last week it closed above the 50-day moving average for the first time since October.

Nalco Holding Company (NYSE:NLC) – The world's top maker of chemicals that are used in the water treatment process. The chart of the stock looks like it may have drank some dirty water. The company lost a third of its value since hitting a high in October, however a support line has been built at $18 and it recently broke back above the 50-day moving average. This is one to watch.

The Ugly

Aqua America (NYSE:WTR) – America's largest publicly traded water utility reported a drop in its most recent earnings announcement and investors let the stock know how it felt. Recently closing at a new multi-year low is not what you would expect from a water play. The problem is that profits have been squeezed and the real money in the water boom will be made in infrastructure and overseas. Some may consider WTR a value play at current prices, but I am not looking to catch a falling knife.

Insituform Technologies (INSU) – The company has an amazing technology that creates a pipe inside a pipe when a leak appears. This is lieu of removing the pipe and having to replace it with a new one. As great as the technology sounds on paper, the stock has been drowning. In January INSU hit the lowest price since 1998 and the chart has yet to form a bottoming pattern. Stay away at this time.

Disclosure: My firm has an interest in SBS, PICO and PIO.

Source: Investable Water: The Good, the Bad and the Ugly