NEW YORK (TheStreet.com) -- While I have reported on Warren Buffett's headline-making investments in companies such as Goldman Sachs (GS) - Get Report, General Electric (GE) - Get Report and BYD, other, less flashy Berkshire Hathaway (BRK.A) - Get Report holdings such as Nalco (NLC) may soon be earning the investor additional profit as well.
Nalco was originally founded in 1928 as the National Aluminate Corporation. Since its founding the company has gone through a number of name changes, listings, delistings and a French acquisition. However, today it sits comfortably as the leading provider of water-treatment and process-improvement chemicals, equipment and services. On top of this, Nalco has earned a spot among Buffett's personal favorites.
While the company appears stable today, Nalco's volatile past led to the creation of a considerable amount of debt that, until recently, distracted the company from reaching its full potential. However, when J. Erik Fyrwald took control of the company in February of 2008, he made it his goal to turn the company around.
Before joining Nalco, Fyrwald held the position of vice president and general manager of
Nutrition and Health Business. He is a graduate of the University of Delaware with a degree in chemical engineering and, on top of being the chairman, president and CEO of Nalco, he serves on the board of directors for
, Fyrwald and his team put together a three-year growth strategy aimed at, among other things, reducing costs and chipping away at the company's debt.
When Buffett and Berkshire Hathaway purchased 8.7 million shares of the company, they did so expecting to see big things in the future. Today, Nalco's water business is three times the size of General Electric's, another Berkshire holding.
Water, like razorblades, candy and soft drinks, is a prime example of the simple, easy to understand and boring companies that Buffett prides himself in holding.
Water covers more than 70% of the Earth. However, a mere 3% is the freshwater that we are able to drink. Unfortunately, two-thirds of that 3% is locked up in glaciers and icecaps. This leaves a mere 1% of the Earth's water that is readily available for human consumption.
Today, an alarming number of nations around the world are at risk or soon to be at risk of freshwater shortages, and the threat does not appear to show any sign of disappearing. In fact, as industrialization and population continue to increase, the number of nations facing shortages is expected to grow. As this occurs, Nalco will be on the front line developing ways to provide relief. The company's process improvement arm, in particular, is dedicated to discovering new ways to increase productivity with limited impact on existing water supplies.
While Buffett has the capital on hand to purchase a huge percentage of a single water company like Nalco, retail investors have the opportunity to put their money in the whole water industry with a number of exchange-traded funds.
Currently, investors looking for pure-play exposure to water companies have four choices:
Claymore S&P Global Water
First Trust ISE Water
PowerShares Global Water
PowerShares Water Resources
. All four of these funds have a considerable percentage of their portfolio allocated to Nalco. In fact, PHO, the only fund among the group without the company listed in its top 10, still has NLC representing more than 3% of the fund. The company makes up 5.3% of CGW, 5.1% of PIO and 4% of FIW.
While all four funds have seen positive returns year to date, PHO, with an average volume of nearly 300,000, appears to be the most stable of the four funds.
Buffett's venture into the water business is not a move to be taken lightly. While recent headlines have been littered with news concerning natural gas and oil, the most crucial commodity to our longevity as a species is water. As companies such as Nalco work for a solution to the current water crisis, we all have the opportunity to bank on their success.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion had no holdings in securities mentioned.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.