Published: October 22, 2010

Although most of us are too young to remember, imagine what it must have been like during the Great Depression or the Second World War. Shortages at those times had most everyone scrapping for basics like sugar, butter or coffee.

Such things may seem unfathomable now because post-World War II America has generally been a land of plenty. Some pretty tough times may be afoot, though. In fact, for a lot of the world's population, those times are already here.

Today, many people have a hard time getting hold of a commodity no one can do without. The problem affects tens of millions in Australia, Cuba, Pakistan, Mexico, Egypt and many other countries. With the combined pressure of climate change and population growth -- the global head count rises by 80 million annually -- the shortage could even be a major issue in the United States within a decade.

The commodity in question: water. We all need it, but it's increasingly likely to become dangerously scarce in the years ahead.

A response from capitalism
As you might expect in a market economy, companies have noticed the burgeoning water crisis and started developing solutions such as improved infrastructure, more efficient purification and better methods of making seawater drinkable through desalinization. Besides being vital in addressing the crisis, their efforts will create investment opportunities that are both noble and lucrative. Water utilities and other firms that own water rights may also deliver strong returns, depending on the company.

Look for mid-cap public water utility Aqua America (NYSE: WTR), for example, to return an average of +10% to +15% annually during the next few years on aggressive expansion of its customer base (the company currently provides water and wastewater utilities for several million residents of 13 states). Continued diversification into solar power is also expected to make important contributions to the company's bottom line.

American Water Works (NYSE: AWK), a mid-cap provider of water and wastewater utilities to 15 million people in 32 states and Canada, is also poised for market-beating returns like I've projected for Aqua America. Forecasted earnings growth of +15% annually will help drive those returns. But be aware the company is highly leveraged and has a short trading history dating back only to 2006. Its 3.7% dividend yield is somewhat better than Aqua America's 3.0% yield, though.

Companies with answers
Whereas water utilities have water rights on their side, innovators like small-cap purification firm Calgon Carbon (NYSE: CCC) are likely to outperform because they develop unique solutions. Calgon, for example, could return an average of +11% to +20% annually because of its rapidly expanding product capacity, which includes granular and activated carbon for removing organic chemical compounds from water and other liquids.