The Investment U e-Letter: Issue # 664
Wednesday, April 18, 2007 Water Stocks: The Companies and the ETF Behind the Commodity People Are Fighting Over
by Alex Williams, Managing Editor, Investment U Yet another vehicle for water-driven profits hit the market today in the form of water stocks… this time in Australia. MFS Aqua Managers launched its MFS Water Fund, which invests in an array of water-related businesses - utility, infrastructure and technology companies, and companies that own water assets and water rights. MFS is just one of the players rushing to tap into the $460 billion global water market. Back here on the American Exchange, the PowerShares Water Resources Portfolio (AMEX: PHO), which tracks the Palisades Water Index, is up 24% since July. But while their long-term fundamentals are in favor, these ETFs alone aren't likely to make you rich… It's water rights in particular that are creating the industry's most compelling investment opportunities. And companies holding rights to water in the American Southwest stand to make a killing in the coming months. Here's why… Water Stock Companies: The Right To "Pump and Pipe" Profits In the 1980s, the Supreme Court ruled that water is, in fact, a commodity, so states can't restrict its trade. This ruling is suddenly creating a big problem in the American Southwest, one of the driest regions of the country… In Arizona and Nevada, two of the fastest-growing states in the U.S., developers, farmers and city planners are scrambling for water rights. An 11-year drought has compounded the urgency. In Mesquite, Nevada, for example, officials say that at current growth rates, the city will run out of water in three to five years. Here's the problem: According to NPR, you can obtain a permit to drill an unregulated well in Arizona for a mere $160… and then do whatever you like with the water. Savvy businesses are gobbling up those permits… The Company Behind "The Fight" For Water Wind River Resources, is one of them… and it plans on shipping the water straight out of Arizona, via the pipeline it's constructing now. Why? Mesquite, the thirsty city back in Nevada, is willing to pay big bucks for the water. Great news for Wind River - and other companies in the same business - but Arizona isn't so hot on the idea. They have pressing water-shortage concerns, as well. Not incidentally, legal battles over water rights are springing up across the Southwest. However, regional disputes are only part of a bigger game of tug-of-war over the commodity. Water rights are becoming a national issue, and a multinational one, too… Next week, government officials from the U.S., Canada and Mexico are meeting in Calgary for the North American Future 2025 Project. On the agenda: How the continent should implement policies to deal with the increasing water shortages in the three countries. The meeting is not open to the public. Bottom line: Companies that own water rights stand to make a significant return on their investment. They are already receiving a premium for their water. And demand is expected to climb higher by the day. Of course, when profits hit the books, shareholders should see significant returns, too. Good Investing, Alex P.S. By the way, one of the smartest ways to profit from water is by owning the rights to this precious resource. There's a small company in Nevada that has been buying up land and water rights in Nevada, Texas, Colorado and Arizona since 1994. It now owns 1.3 million acres… and is about to cash in, selling a portion of its rights for 1,285 times the original purchase price. The deal could triple the company's cash reserves overnight, and another four deals are underway. To get the details, read the full report. Today's Investment U Crib Sheet This morning, Nevada's state engineer said that Las Vegas is entitled to take up to 40,000 acre-feet of water a year from eastern Nevada's Spring Valley groundwater reserves. That's half of what the city was hoping to get. Nevada is also in prolonged negotiations with Utah. The two states are trying to figure out how to share the groundwater in nearby Snake Valley. For more on the fundamentals driving water demand higher, see one of Jim Stanton's recent articles in the Smart Options E-Report - Investing In The Water Market: Turn Water Investments Into Profits From This Looming Global Crisis. Jim's a top analyst with Mt. Vernon Research, and offers extensive coverage of the water industry. It's 11.2 Times More Valuable Than Oil - And the Fight Has Just Begun… The fight for water in the American Southwest is spawning a new Civil War. Lake Mead and the Colorado River are taxed to the limit by the onslaught of millions of new residents. More than 50% of New Mexico is already entangled in bitter water litigation. And right now one company is turning this demand into profits… It's about to release 2.6 billion gallons of water to waiting developers at near record prices, for a 102,000% gain. A few investors can still get in before the hedge funds and private equity for a 381% pop. Related Articles Investment U Archives 
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