Water is the world’s most prized possession, more valuable than oil or gold will ever be. But because we come in contact with it on a daily basis, we tend to overlook its scarcity and hence, its value. Most of us went through our usual motions on Monday, March 22nd without even knowing that it was World Water Day, developed by the United Nations in 1992 and observed annually to build awareness of the global water crisis. The world is in constant dialogue about ways to protect its most precious commodity, and Jamaica and the rest of the Caribbean, which are currently facing a severe drought, need to join in this effort more actively. It is also time for investors to chime in, if they haven’t already, as long-term investment opportunities exist in water.

Of the 70 per cent of the earth’s surface that is covered in water, 97 per cent is saltwater, which cannot be used for drinking, crop irrigation or most industrial purposes. Less than one per cent of the remaining three per cent that is fresh water is readily accessible for human consumption. As a result, the world has a global water crisis on its hands. Demand far outstrips supply, and if the global population continues to grow at its current pace, it is estimated that more than half the world’s population will encounter water shortages by 2025, and eventually the world will run out of water completely.

Yet, alternative energy has been at the top of global governments’ priority lists, and investors have followed suit. Oil, ethanol and natural gas have been in the limelight for decades now. But the reality is that none of these can exist in a usable form without water. We should then be asking ourselves why investors haven’t focused more of their attention on water, commonly referred to as the “blue gold”.

Part of the answer is that water remains cheap. Due to government subsidies, water prices are held artificially low. As such, water is one of the few commodities whose price does not move in accordance with simple supply and demand economics – shortages have not resulted in price increases. Also, investors are skeptical about whether water is really that scarce. With technology, it is now possible to desalinate ocean water, purifying it to a drinkable form. So how can there be any kind of water shortage when all of the earth’s water can be treated?

Like everything else, it comes down to cost. Desalination is extremely expensive, costing at least five times as much as other sources of fresh water. For starters, energy accounts for up to 44 per cent of the desalination cost, making it vulnerable to spikes in oil prices. Though there are more than 10,000 desalination plants around the world, half of these are in the Gulf area, in oil-producing nations. So essentially, the world has two options – either cut back on usage (and we all know people won’t unless they are subjected to price increases) or desalinate. Both of these result in higher prices of water in the long run, clearly indicating that now is the time to consider investing in water.

There are multiple avenues for investors to do this. The more conservative option is to take a position in a diversified company that has exposure to the water industry. Nestlé Waters, a segment of Nestlé SA (SIX: NSRGY) is the leading bottled water company globally, having approximately 30 per cent of market share in North America. It has over 72 bottled water brands, including Poland Spring, Arrowhead and Deer Park, as well as higher end brands such as Perrier and S Pellegrino. NRSGY has outperformed the Dow Jones Industrial Average (DJIA) over the past 52-weeks, climbing 62.84 per cent, while the DJIA is up 48.18 per cent.

Similarly, soda giants such as The Cola-Cola Company (NYSE: KO) and PepsiCo, Inc (NYSE: PEP) are also large distributors of bottled water, Dasani and Aquafina respectively. Both companies have a track record of robust earnings, and though KO and PEP do not breakout their profits specific to their bottled water businesses, both have reported that they have seen strong sales growth in this segment. But the bottled water business is not only booming on the international market, but also here in Jamaica. In August 2009, it was reported in the media that Wisynco’s Wata brand recorded 50% growth so far for the year.

However, investors also have the option to invest in companies whose business directly focuses on water treatment. Calgon Carbon Corp (NYSE: CCC), which provides water purification solutions, and Nalco Holding Company (NYSE: NLC), which offers integrated industrial water treatment, are two of the biggest names in the water industry in the US. CCC has increased 24.1 per cent year-to-date and 15.77 per cent over the past year. The company reported fourth quarter 2009 Earnings per Share (EPS) that more than doubled to US$ 0.23 from US$ 0.12 in 2008 (up from US$ 0.08 in Q04 2007). Similarly, NLC has increased more than two fold over the 52-week period and reported EPS of US$ 0.31 for its fourth quarter ended December 31, 2009, its strongest quarter for the year.

Other options include investing through exchange traded funds (ETFs), the most popular being the PowerShares Global Water Portfolio (NYSE: PIO). The fund is based on the Palisades Global Water Index, an index that tracks the performance of companies involved in the global water industry. Over the past 52-weeks, POI has outperformed the DJIA, rising 58.17 per cent. However, it is important for investors to note that PIO’s portfolio is rebalanced and reconstituted quarterly.

The world’s water crisis will not be on the back burner for much longer and investors should consider the global water industry as part of their long-term investments. As it becomes increasingly difficult to quench the world’s thirst for “blue gold”, investors may want to take a second look at water stocks, particularly water treatment and bottling companies.

Michelle Hirst is the Manager, Equities & Research at Stocks & Securities Ltd (SSL). You can contact her at mhirst@sslinvest.com