Of course, this same indifference could be said about energy as well — at least until recently. It’s hard for the average person to be indifferent about $3.25 gas. And I suspect it will be even harder for him to stomach first $4, then $6.

And while energy prices affect everything from how much it costs to heat your home to how much you pay for a loaf of bread, the availability of potable water is paramount to your health.

I distinctly remember an interview I had with a health official a few years ago about the possibility of a worldwide flu pandemic. The discussion wandered off-topic to general health. He said that some of the most important advancements in medicine were improvements to public health. Advanced cancer research, robotic surgery and new, cutting-edge drugs are great, he said. But he also said standard vaccinations, health education (such as anti-smoking campaigns) and public water and sanitation are most responsible for the increase in quality of life over the past century.

Our longevity as a country has been dependent public health advances like these. And as America’s water resources dwindle and the infrastructure falls into disrepair, you can bet that states, municipalities and businesses spend every dime necessary to keep the pipes full.

Water’s Quiet Track Record

Water’s track record — though virtually unnoticed by the average investor — has been one of the best performers on Wall Street.

I was reading through some data online at the Gillespie Research Archives when I came across an older article by John Dickerson, president and CEO of Summit Global Management, Inc.

As it turns out, water utilities have been quietly outperforming the market for years. Check out this five-year performance comparison:

5-Year Summary: Dec. 31, 1998 – Dec. 31, 2003
———————————-
                                Total Ret.         Annual
———————————————–

Water Utility Stocks    107.96%          15.77%

                                     S&P 500 Index              -2.81%           -0.57%

                                     Dow Jones Industrial     24.97%            4.56%

                                     Nasdaq Composite        -7.04%           -1.45%

“A striking and very illustrative fact is that we have not found any randomly selected five-year period in the last 25 years (1982-87, 1993-98, 1979-84, etc.) where water utilities were not among a very small group of best performing sectors in the U.S. stock market,” Dickerson wrote.

In fact, two water utilities were some of the best performing stocks between 1983 and 2003. Philadelphia Suburban Corp., which is now Aqua America (WTR: NYSE), had a total return of 2,033.07%, or 16.52% annually, over this same timeframe. SJW Corp. (SJW: NYSE) boasted total gains of 1,433.28%, or 14.61% annually.

To put this in perspective, Aqua America outperformed both General Electric and Exxon Mobile from 1983 to 2003, as they posted annualized gains of 16.47% and 16.20%, respectively. During this 20-year period, only eight stocks outperformed Aqua America: Home Depot, Wal-Mart, Gillette, Coca-Cola, Merck, Johnson & Johnson, Disney and Procter & Gamble. General Electric came in tenth.

And I’d bet money there’s only one company on this 20-year top-10 list that the average person wouldn’t recognize: Philadelphia Suburban Corp. (Aqua America). In what other sector could you find such a strong performer that has managed to stay under the public’s radar while clobbering the Street for 20 years? How much longer will it be before Joe Stockwatcher catches on? It might take a disaster before he opens his eyes…

It will take a true crisis for the common investor to notice these profitable water stocks. As the rest of the world slowly begins to wake up to “blue gold,” those who ultimately profit will be those who first recognized that the most important liquid on Earth is water, not oil.

Best,

Gunner
July 24, 2006

Silently Beating the Blue Chips was originally featured in the Penny Sleuth.