Investors searching for the next big theme to wrap their cash around might want to take a closer look at California’s ongoing water crisis, says Beijia Ma, a thematic investing strategist at Bank of the usa Merrill Lynch.
The unprecedented drought in the Golden State, that is now in its fourth year, is expected to drive a US$1-trillion market opportunity by 2020, she said, noting, in particular, four broad “entry points” that investors should consider: water treatment, water management, water infrastructure and offer, and water-friendly energy.
“We have seen the fastest 3-5Y growth from the low hanging fruits of water treatment and recycling, more efficient water usage (smart meters, high quality irrigation, surface and groundwater storage), technology, EMs (China), water-friendly energy (solar and wind), and desalination,” Ma wrote in a note to clients.
The strategist provided a summary of stocks that have high exposure to the global water theme, but the California drought.
Those names include Stericycle Inc., a water treatment company; Grupo Rotoplas S.A.B. de C.V., a Mexican water management and infrastructure company; American Water Works Company Inc., a water infrastructure company; as well as Enphase Energy Inc. and First Solar Inc., two water energy-friendly companies.
“California and Hawaii have been flagged as the U.S. states with the greatest potential for further solar adoption,” Ma said. “We feel the drought could be one of many catalysts for California\’s transition towards water-friendly sources of energy production.”