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Investing in Water Shortages

|Includes: Northwest Pipe Company (NWPX)

I've found the most striking piece of evidence yet that we're facing imminent widespread water shortages.

The Mississippi River has disappeared.

Not literally, of course. But a new study has shown that in the past 60 years reduction in water flow to the Pacific Ocean has been about equal to shutting off the Mississippi River.

Recently published in the American Meteorological Society's Journal of Climate, the report found that a third of major rivers have had significant changes in flow. Of the 925 rivers analyzed, their total discharge is less now than it was 60 years ago.

We are losing water.

According to lead author Aiguo Dai of the National Center for Atmospheric Research, "freshwater resources will likely decline in the coming decades over many densely populated areas at mid- to low latitudes. . . we are likely to see greater impacts on many rivers and water resources that society has come to rely on."

But the reason for the decline in flow isn't human. The report said very plainly that "for many of the world's large rivers the effects of human activities on yearly streamflow are likely small compared with that of climate variations during 1948-2004."

The most startling implication?

Most of the rivers in decline are near large population centers: Yellow River, the Ganges, the Niger, and the Colorado. Rivers with increased flow are in the Arctic near small populations, are due to melting ice, and are largely wasted as they dump into the ocean.

We Can't Move the Cities

So we must move and manage the water. And that's very expensive.

Taking an early stake in the companies that can ensure freshwater for a growing population is undoubtedly one of the wisest decisions you can make. Water is invaluable. Nations are willing to fight for it, so of course they'll be willing to pay for it.

Take the timely case of Northwest Pipe Company (NASDAQ: NWPX), which "manufactures and markets large-diameter, high-pressure steel pipeline systems for use in water applications, primarily related to drinking water systems."

The company reported its first quarter earnings yesterday and quietly beat The Street, posting a $0.28 per share profit instead of the expected $0.23.

When we hear about earnings surprises these days its usually because a company lost less than expected, not because they profited more than expected. But I guess that doesn't apply when your company makes crucial parts for a vital liquid whose worldwide supply is in decline.

The stock popped a quick 12% in the first hour of trading, before savvy investors started walking away with profits:

More and more people are finally starting figure out the mind-numbingly simple water equation: constantly rising demand + falling supply = easy profits.

Water Not the Only Thing Disappearing

Easy water profits are being spurred by more than just a dwindling supply of the natural resource.

The integrity of our water infrastructure is also declining at an alarming rate. And, as with most water issues, evidence is abundant.

For example, there are 700 water main breaks in North America on any given day. That works out to over 255,000 per year. No wonder water pipes are in high demand.

More often than not, you don't have to look far for a local example.

This week here in Baltimore a large water main broke and shut down the entire Inner Harbor area:

Ironically, public works was aware of growing problems in the area and had a meeting scheduled on the day of the break to coordinate a $2.6 million project to fix it.

The meeting was canceled due to the water main break.

But that $2.6 million will eventually be spent.

And scenarios like that are playing out in cities across the world. All you have to do is notice the trend and set your traps for profit.