A crisis is unfolding that no one is talking about.

It's not financial. And it's not about oil.

Yet scores of Fortune 500 companies are worried about it. And at the same time, dozens of companies are salivating over the opportunity it presents.

The crisis revolves around water or, more precisely, the growing lack of it.

Of course, the steady supply of freshwater has been in question for some time now. Whether from increased demand, out-of-control pollution, population growth, or changing weather patterns... the political and business worlds are seriously worried about future water supply scenario.

The worry has grown so much that several extensive studies have recently been commissioned to determine the possible outcomes of a water-constrained world. (These are studies that relate to the business aspect — not the humanitarian aspect — for which the UN and other bodies already have endless research.)

Results from those studies will not only surprise you, they can provide you with the insight necessary to walk away with handsome profits in the water industry.

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The Widening Water Gap

Some of the most startling conclusions I've seen came from a report put out by McKinsey & Company called, Charting our water future: Economic frameworks to inform decision-making.

The report was commissioned by the World Bank in conjunction with such stalwarts as Coca Cola, Nestle SA, and Syngenta, among others.

The main takeaway from the report is that demand for water already exceeds supply. But it also put forth some great data, statistics, and models that show just how valuable water will become over the next few decades.

For investors, the most important sentence of the entire report is this one:

By 2030, under an average economic growth scenario and if no efficiency gains are assumed, global water requirements would grow from 4,500 billion m3 today (or 4.5 thousand cubic kilometers) to 6,900 billion m3... this is a full 40 percent above current accessible, reliable supply.

Reverting to elementary school word problems, that means we'll need 10 apples. But there will only be six available.

The report concludes that it will take "an annual capital requirement of approximately $50 to $60 billion to close the water resource availability gap." That's if we take the "least costly" route, which includes drastic increases in efficiency.

That amount, spent every year until 2030, comes out to a cool $1.2 trillion.

Finding Drops in the Bucket

I've often heard proposed solutions to our energy and water woes referred to as a drop in the bucket. But when your bucket holds $1.2 trillion, finding a few drops is all you need.

A good place to start is knowing the respective cost levels for various proposed water solutions. You can be sure the cheapest measures will be taken first, followed by more costly measures. You should invest accordingly.

And from a bird's-eye view, cost structures for water solutions closely mirror those for energy solutions...

Efficiency is by far the cheapest approach, so those measures will be taken first. Some of those ideas — like taking shorter showers — are not investable. But others have a massive profit angle, like smart water meters provided by Itron Inc. (NASDAQ: ITRI), or advanced agricultural irrigation equipment made by Lindsay Corp. (NYSE: LNN).

Solutions like these are attractive because of their low capital costs (or savings) compared to the costs for addressing supply-side challenges.

And as with energy... after efficiency is tackled, supply must be addressed.

We can't make more water, so supply-side efforts will center around distribution infrastructure. This will mean heavy investment in environmental engineering, new treatments plants, and billions worth of new parts (pumps, valves) and pipes.

There's a bevy a public companies that will benefit as this spending gets underway. To get broad access, you'll want to be holding a water exchange traded fund (ETF). The PowerShares Global Water (NYSE: PIO) has already started to pull away as billions of stimulus dollars are poured on the sector:





You may want to check out a few others, as well.

But to really harness the coming bull, seeking out the best individual companies is a must. This new report will help you do just that.

From irrigation to purification to desalination... I've sifted through hundreds of water stocks to find the best one for my readers. I truly expect 2010 to be a breakout year for the water sector, so make sure you don't miss out.

Have a great holiday,

Nick

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