20 Stocks That Are Running on Water

Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com.

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Biotech, energy, steel and semiconductors have charmed investors with their muscular start to the year. But there's one little group that has paradoxically been on fire this year, and it may be the most liquid investment opportunity in the world.

With an introduction like that, you just had to figure that I am referring to the most humble natural resource in the world, and that is water.

Did I say humble? Maybe not so much anymore. A brand-new exchange-traded fund designed to track the performance of water stocks, the PowerShares Water Resource Portfolio(PHO Quote) -- which tracks the PowerShares Palisades Water Resource Index -- is up a whopping 15% so far in 2006.

That swamps the performance of the red-hot AMEX Biotechnology Index, up 8% this year; the Philadelphia Semiconductor Sector Index, up 6%; the iShares Dow Jones U.S. Basic Materials Sector Index, up 3%; and the 2% advance of the iShares U.S. Energy Sector Index. And if your mom ever told you that clean water was as precious as gold, she was at least right this year, as the Philadelphia Gold and Silver Sector Index is only up 3%, or five times less than water.

The Must-Have Commodity

What's behind the move? A key attraction of water as an investment is that demand is accelerating and is not affected by inflation, recession, interest rates or changing tastes. You can live without steel. You can live without oil. You can live without gold. But try living without water, and you won't last too long. About eight to 10 days, by most estimates.

The problem is not that the world is running out of water. Scientists seem to agree that there is pretty much the same amount of water on the surface of the planet now as there was 10 million years ago, as physical forces ranging from respiration to precipitation replenish the supply and maintain hydrobalance. No, the problem is that drinkable surface water is increasingly polluted because of the urbanization of rural areas and industrial farming, particularly in the developing world and China. And all the while, there are simply a lot more people who want a sip.

When you look at the Earth from outer space, you see a lot of water. But less than half of 1% of it is fresh; the rest is either seawater or frozen in the polar ice caps. The United Nations, which will celebrate World Water Day on March 22, reports that the consumption of water worldwide is doubling every two decades -- twice the rate of world population growth. Already, 1 billion people do not have easy access to drinking water. By 2025, the U.N. figures that 2.7 billion people will suffer from severe water shortages.