Planet Water: Profit From Nature’s Most Plentiful Resource
If you gaze down at earth from outer space, most of what you’ll see is water. Nearly three-fourths of the planet’s surface is covered by ocean, earning our world the nickname “the water planet.” About 30% of our liquid freshwater is groundwater; the remainder is found on the surface in streams, lakes, rivers and wetlands.
Pollution and overpopulation increasingly endanger this essential resource. Consequently, one of the biggest investment trends you can find is booming demand for bottled water. Recent moves by local officials in Michigan, Wisconsin and other states to ship bottled water to residents in cities where the public water supply is tainted underscore the growing role of bottled water in our daily lives.
Below, I examine two stocks that are benefiting from the bottled water craze: one is a mammoth transnational food company based in Europe, the other an entrepreneurial firm in the U.S. with more risk but greater room for growth.
High demand, high margins…
Dr. Stephen Leeb (pictured) recently joined the Investing Daily team. He’s chief investment strategist of The Complete Investor, Real World Investing, and Aggressive Trader.
Leeb points to “the rising appeal of bottled water, even though in some cases it’s estimated to cost an astounding 2,000 times more than tap water. While some of this extravagance reflects fashion and convenience, it also evidences a concern that tap water is unhealthful.”
Leeb predicted the 2008 global economic meltdown, in his New York Times bestseller: The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel (Warner Books, 2006). So when he makes a pronouncement… well, it pays to listen.
Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), and the rest of so-called Big Soda are in decline, as consumers reject sugary soft drinks to guzzle bottled water. Global bottled water consumption has grown from 212 billion liters in 2007 to an estimated 391 billion liters by the end of this year. Meanwhile, sales of full-calorie soda in the U.S. have plummeted by more than 25% over the past 20 years. Even diet sodas are slumping in sales.
U.S. bottled water sales now hover at more than $15 billion a year and they’re projected to grow by 34.7% by 2020. That growth includes a whopping projected sales increase of 75.1% in the sparkling/mineral water/seltzer segment. The consumption of bottled water surpassed soda in 2016 to emerge as the biggest beverage category by volume in the U.S.
Consider this: Americans now spend more money every year on bottled water than on iPods or movie tickets.
As sales of Big Soda’s mainstay products have declined, the companies have scrambled to offer new products better suited to consumer tastes. Iced teas, sports drinks and flavored waters are smaller but fast-growing segments of the beverage industry. But for the makers of Coke and Pepsi, it’s a case of too little, too late.
The big thirst…
One safe and reliable way to profit from the bottled water phenomenon is Nestlé (OTC: NSRGY), the Switzerland-based consumer foods company that offers a wide range of iconic nutrition, health, and wellness products. Nestlé is the largest food company on the planet.
With operations around the globe and a market cap of $259.1 billion, Nestlé sells products that are familiar household names. Among its more than 8,500 products are Alpo, Cerelac, Gerber, S.Pellegrino, Nesquik, Butterfinger, Baby Ruth, Crunch, KitKat, Toll House, Wonka, Nescafé, Buitoni, DiGiorno, Herta, Hot Pockets, Jack’s, Lean Cuisine, Maggi, Stouffer’s, Tombstone, Carnation, Coffee-Mate, La Laitière, Nestea, Häagen-Dazs, Dog Chow, Friskies, Purina… [deep breath] the list goes on and on.
According to the trade journal Beverage Digest, Nestlé Waters North America currently controls more than 70 of the world’s bottled water brands. To help protect the natural water sources of these brands, Nestlé on May 22 announced it’s investing $6 million as part of a joint effort among business, government and community partners to fund recycling infrastructure and programs in cities across the U.S.
With a trailing 12-month price-to-earnings ratio (P/E) of 31, Nestlé’s valuation is roughly in line with KO and PEP. What’s more, Nestlé’s dividend yield is a healthy 2.64%.
For more aggressive investors, a small-cap company positioned to ride this trend is Alkaline Water Company (OTC: WTER). Year to date, WTER shares are up 42%, compared to 9% for the S&P 500.
Headquartered in Scottsdale, Arizona, Alkaline Water produces and sells bottled alkaline water for retail sale in the U.S. The company provides its product to retail consumers in various volumes under the Alkaline88 brand name. Its target retail markets include chain and independent health food stores, grocery stores, convenience stores, drug stores, and the mass retail market.
The alkaline diet is based on the belief that certain foods can influence the acidity and pH of bodily fluids, including the urine or blood, and consequently can be used to treat or prevent diseases. Alkaline Water emphasizes electrochemically activated water, which is high-quality 8.8 pH drinking water, without the use of chemicals and available in bulk sizes.
Alkaline Water posted 89% year-over-year revenue growth in FY 2016 (ended March 31) and expects to more than double revenue in the current fiscal year. For FY 2016, revenue was $7.09 million, compared to $3.7 million in 2015 and $552,000 in 2014. Revenue growth has racked up a three-year average of 677%.
FY 2016 showed a loss of $2.19 per share, which is lower than the loss of $3.00 per share in 2015. The cost of the company’s expanded production has weighed on profits but those investments in revenue growth should start paying off in 2017. Gross income in FY 2016 reached $2.34 million, up from $993,004 in 2015 and $98,441 in 2014.
On June 8, Alkaline Water announced that in May 2017 the company sold a record $1.84 million of Alkaline88 water to customers, a level that’s up more than 80% from May 2016.
With a market cap of $24.7 million, Alkaline Water is a small-cap rocket in a year that’s expected to be a prosperous one for the small fry of the stock market. Be advised, though, that this stock can be volatile and isn’t appropriate for risk-averse investors. If you want to err on the side of safety, instead consider well-diversified, large-cap Nestlé.
Got any questions or comments? Drop me a line: email@example.com. I’d especially like to hear how you’ve fared with my recommendations. — John Persinos
Your path to rapid profits…
As I’ve just explained, bottled water is fast becoming an investment mega-trend. Jim Pearce, chief investment strategist of Personal Finance, wants to share with you another way to make rapid profits.
Jim put his team of analysts to work on back-testing the results of a trading system called The Rapid Profits Matrix. What they found is eye-opening. For more than 10 years, the system has averaged at least 12 triple-digit annualized returns each year
And yet, this is a low-commitment system. You’re not day trading, but you’re not “buying-and-holding” either. You’re not sitting in front of a computer all day, worrying about the news. Instead, you’re executing simple trades that deliver rapid profits using what we call a “matrix system.”