Drinkable water makes up only 2.5% of all the water on earth. And of that drinkable water, only 1% is readily accessible.
So it’s not surprising that the world is in a water crisis.
A full four billion people live in conditions of extreme water scarcity. That’s more than half the world’s population.
But the pick we’re bringing you today is helping to solve that problem. It allows communities to take the water that covers 70% of the earth’s surface and make it both drinkable and affordable.
This desalination technology is revolutionary, especially when you look at how dire the water shortage situation has become…
- There’s Cape Town, South Africa, which is bracing for a potential “Day Zero,” when residential taps are turned off and water is dispensed in rations.
- Or there’s Perth, Australia, whose residents brought European water-use habits to a much drier climate and have found their reservoirs and aquifers dangerously depleted as a result.
- In the Middle East, Israel has faced four straight years of drought. The nation’s Water Authority warned of a long-term water shortage earlier this year.
- And of course, in the United States, Southern California combines a desert climate with a population glut. That leads to water supply issues whenever the weather is drier than usual.
The shortages faced by these areas are unsettling, and they can be frightening for those who live there. But one advantage the communities above have is that they are near the ocean. That means there’s a solution.
But that solution – desalination – requires a lot of energy (and therefore a lot of money). That’s why it hasn’t always been a viable option, especially in communities that aren’t wealthy.
Our pick today has been a major force in reducing the energy needs for desalination. It recaptures energy that would normally be wasted in the process and recycles it back into the system.
The company’s flagship product can reduce desalination-plant costs by 60%, for a total savings in plants around the world of $1.4 billion every year.
For water-starved communities on the coast, a previously unworkable solution suddenly becomes a no-brainer.
For this company’s growth prospects, the math is pretty simple. The world’s population is growing, and the freshwater supply is not. So desalination becomes more and more indispensable with time.
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According to Grand View Research, the global water desalination equipment market is set to grow from $11.6 billion in 2016 to $23.3 billion by 2025.
Between the unstoppable rise of desalination and the 90% market share of this company’s products, our pick today is a must-have in your portfolio.
The Ingenious Device Generating Billion-Dollar Savings
Energy Recovery Inc. (Nasdaq: ERII) introduced its flagship product, the PX Pressure Exchanger, in the late 1990s. This small but ingenious device requires no electricity to run. It uses the hydraulic energy of a desalination plant’s wastewater to help pump more new seawater into the membranes that filter it.
The difference when the fully scalable Pressure Exchangers are used together is a big one. Plants can use significantly smaller pumps and spend much less on electricity to run them, making desalination viable where it otherwise wouldn’t be.
Energy Recovery products can be found in plants around the world. Recent contracts have included desalination plants in California, Texas, Saudi Arabia, Egypt, China, and India.
A big reason plants choose ERII, aside from efficiency, is durability. The Pressure Exchanger requires zero maintenance. And it pretty much never wears out.
In 2011, the company bought back some of its units from a plant in Perth to check the wear and tear after five years of use. There was none. The ceramic apparatus was so pristine that even pencil marks made during manufacturing were undisturbed.
The company’s measurements suggest that plants can expect .003 inches worth of wear – about half a pinhead’s worth – on their products every 25 years.
That kind of durability would be desirable in any industry. But when plant downtime can disrupt a community’s water supply, it’s no wonder plant operators turn to the most dependable option nearly every time.
ERII continues to make improvements on its products, though. After a decade on the market, the noise level on the PX Pressure Exchanger was brought down by 15 decibels, making it quiet enough to have a conversation nearby.
That might not seem like a big deal, until you consider that noise – aside from just being annoying – represents wasted energy. The technicians at ERII recognized this inefficiency and made the necessary adjustments that allow the Pressure Exchanger to recycle even more energy into the system.
Adjustments like these are going to help maintain Energy Recovery’s dominance in this industry for years to come.
Bringing ERII Technology to the U.S. Oil and Gas Industries
Water desalination is ERII’s bread and butter, accounting for more than 90% of revenue. But it also helps companies reduce energy needs in other fields – most notably oil and gas.
Horizontal hydraulic fracking has revived the U.S. oil industry and allowed this country to reclaim some energy independence in the last decade or so. But like desalination, fracking is not cheap. And in a highly competitive market, every bit of savings counts.
Energy Recovery rolled out the VorTeq in 2015. This product uses similar technology to the Pressure Exchanger, helping to protect pumps from fluid damage and reducing production time. This can save each fleet using the technology up to $1 million per year.
ERII signed a 15-year contract with Schlumberger Ltd. (NYSE: SLB), the world’s largest oil field-services provider, to employ the VorTeq beginning in 2015.
That same year, the company’s IsoGen device, which converts runoff energy from oil and gas pipelines into electricity, was adopted by Saudi Aramco, the most valuable and most profitable company in the world.
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As with the PX Pressure Exchanger, these and other products by Energy Recovery are low- or no-maintenance, remarkably durable, and deliver instant cost savings.
So it’s no wonder that companies big and small want to get their hands on them.
Crunching the Numbers: Why ERII Is an Incredible Bargain
In 2018, Energy Recovery appointed Chris Gannon as its new CEO. Gannon was instrumental in guiding the City of Detroit out of its financial mess when it filed for bankruptcy in 2013.
That’s a strong choice for a company that helps turn inefficient industries into efficient ones.
Soon after Gannon came on board, he announced a stock buyback program representing about 2.5% of the company’s market value.
That move, showing the company’s confidence in its value, is our first sign that ERII is undervalued and ready for a pop.
Sales have been steadily rising over the last several years, from $30.4 million in 2014 to $63.2 million in 2017. Earnings per share (EPS) shot up from $0.02 in 2016 to $0.22 in 2017. That’s 1,000% growth in just one year.
According to FactSet, EPS is projected to nearly triple to $0.60 by 2019.
That earnings growth has been enough to catch the attention of several Wall Street analysts. Out of four analysts tracked by FactSet, all of them rate ERII a “Buy,” and three of them set a price target of $20.
That would be a rise of 145% from its current price. But even that might be low.
The stock’s price-to-earnings growth ratio for the last 12 months comes out at 0.1733. A fairly-priced stock by that metric should come out at 1.
That suggests a 477% jump in ERII’s share price. And that’s before we account for its future earnings growth.
Energy Recovery Inc. is a great stock by any measure: It helps solve one of the most life-threatening problems of our time. Its products save money and energy, use no power, require no maintenance, and last for generations.
And ERII dominates a market that is always growing.
Best of all for you, you can grab it before the rest of the market figures that out.
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A paradigm-shifting technology could disrupt every major industry, and one tiny company is at the center of it all.
It recently inked four major deals… BlackRock has snatched up 29 million shares… and its technology could be adopted by millions around the globe.
Best of all, this stock trading for less than $10 could deliver a 471.9% gain for early investors.
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