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A quiet sea of investment potential

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Talk about irony. Drinking water – one of nature's most precious resources – is scarce in almost half the world. In the United States, drought conditions, expected to worsen, have already led to restrictions on water use, especially on the East Coast.

Yet, when it comes to the world of investing, water is widely overlooked.

Some analysts who track water believe investors are making a mistake: "Every investor should own not just one, but two water-company stocks, a large company and a smaller company that will likely be taken over in a merger or consolidation," says George C. Fisher, whose book, "The Streetsmart Guide to Overlooked Stocks," is due out in November.

Reasons to own a water stock are not hard to find. For the year to date through early May, the Standard & Poor's water index is up just under 5 percent, compared with a nearly 9 percent drop in the S&P 500 Index.

For the past seven years, the water index's average annual return is roughly 23 percent, compared with 10 percent for the S&P 500.

Investors interested in water stocks, analysts note, should examine three different types of companies:

• Publicly traded water utilities. Companies include Philadelphia Suburban, American States Water, California Water, Middlesex Water, York Water, and Connecticut Water.

• Water-related service firms. Some, such as Southwest Water, provide meter-reading services for other water systems.

Other firms such as Ionics, Cuno, and Tetra Tech deal with water filtration and wastewater treatment. Companies such as Insituform work on sewers and other piping systems. And a few others focus on desalination, converting seawater into drinkable water.

• Companies that bottle and distribute drinking water to consumers. The stakes are high in this $7 billion industry. A gallon of water now sells for more than a gallon of regular unleaded gasoline in many parts of the country.

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