Global water issues, including increased demand for clean water in agriculture and emerging markets, is pushing some industrial companies to either invest in or develop ways of improving water quality and efficiency in order to enhance their growth rates, says David L. Rose, the vice president of equity research in water and renewable energy at Wedbush Securities.
“On a thematic basis, we’re seeing companies looking for ways to invest in water, and those ways could be investing in technologies to treat water, ways to move water, ways to improve not only the quality of water but the amount of available water, clean water,” Rose said. “So there is also municipal and industrial and agricultural use of water — those are the three big categories of water users.”
One way companies target water efficiency and quality issues is through manufacturing water filters. Rose follows Pall Corp. (PLL), a company invested in this area that he says has a fair valuation, recurring revenue streams, high-margin business and a good return on invested capital.
“Pall Corp. provides filters to a variety of different industries, and it’s really a fluid company,” Rose said. “So if you have a flat screen TV, those producers of flat screen TVs, they need pure water. The life sciences or the biopharmaceutical industry needs pure water, hospitals need pure water. About 40% of their business is in the life sciences area, and even though it’s life sciences, it touches water. And they’ve experienced a significant amount of growth from emerging markets.”