I've written a lot about defensive investing and have focused on grocery stores and lodging facilities as ways of producing income without a lot of risk to principal.
Even as the underlying stock prices of some of the grocers have been bizarrely volatile in the past few years, the main rationale remains for calling them defensive investments. People need to eat, drink, shelter and clothe themselves. It's the idea of investing using Maslow's hierarchy of needs as a guide.
(I've written about this issue in the past, but the columns are no longer in the Real Money archives. If you want a copy of the previous columns, send me an email to rogerbarnold@gmail.com.)
One of the areas of Maslow's guide that I have not discussed is water.
The theme of clean drinking water and potable water, as well as water purification and recycling, is one that waxes and wanes with investors, even as the need for clean water continues to grow globally.
One of the few ways investors have of capitalizing on the issue is through Veolia Environnement (VE).
Even though Veolia is currently trading up about 12% this year, from $15.90 to $17.75, it is still below its March 2009 low of $20.68. At a trailing 12-month price-to-earnings ratio of 32, it's a bit pricey here, but it's also paying a 4.4% dividend of $0.78 per share.
A more immediate consideration is that investors are becoming more interested in water. The current drought on the West Coast of the U.S. is once again drawing attention to the issue, along with the ongoing and growing public debate in the U.S. about the impact of fracking on ground water. Both are helping to keep this issue in front of investors.
Since the last major drought in California in 1976-77, the population of the state has roughly doubled.
The rapid increase in the rate of urbanization in China is causing access to potable water to become an increasingly important, economic, political, and social concern there too.
The two largest economies in the world are becoming more preoccupied with the issue of water. That means that government representatives in both the U.S. and China must pay attention, and investors will be increasingly drawn to the issue for the foreseeable future.
Veolia should be able to capitalize on this as well, as governments have to endeavor to limit losses of current potable water, use it more efficiently, try to figure out how to increase it, focus on reclamation of existing fouled supplies and limit this process in the future.
It's a monumental task but one that can't be postponed, even if there is a capital market disruption or government gridlock.
