In this article we discuss 10 best water stocks and ETFs to buy in 2021. You can skip our discussion of the water utilities industry and growth catalysts for the water stocks and go directly to 5 Best Water Stocks and ETFs to Buy in 2021.
Investing in water stocks and ETFs is one of the safest bets in the volatile markets of today. Part of the solid and reliable utilities sector, water stocks and ETFs are gaining value and appeal because of several key factors, including consistent dividends, ESG mandates, social attributes and lack of uncertainty. Investors are hungry for stocks that have an intrinsic ESG value and are also aligned with new climate standards. According to former managing director at Macquarie Capital Angie Storozynski, water stocks are the best utility stocks because they have “longer investment horizon, lower operating risk” and they ace lower customer-affordability pressures. Water stocks will be the top beneficiaries of the renewable energy push worldwide. President Biden’s push to achieve net-zero carbon emissions by 2050 and his $2 trillion investment will help the utility sector as a whole. Unlike other utility companies, water companies have little to lose and more to gain from this change.
Growth Catalysts for Water Stocks and ETFs
As cities and population grow, governments and businesses will need efficient wastewater, drinking water and water storage services. According to a report by McKinsey, at least $3.7 trillion is needed in investments through 2035 to support the expected growth of cities. Most of these investments would go in the utilities sector, with water companies being the primary gainers. There is also a huge room for innovation and growth in the water sector. Governments need new technologies to extract, purify, discover and deliver water. Barclays in a report identified that as the world moves toward “smart cities,” investment opportunities in waste and water management areas like leakage detection, predictive maintenance and planning will grow.
Digital Water Platforms and the Future of Utilities
Water companies are already investing to meet the demand and needs of the future. American Water Works announced in its 2017 annual report that it has a three-year technology and innovation plan to use artificial intelligence to better serve its customers. While announcing the company’s 10-year capital spending plan in December 2019, American Water Works CEO Susan Story said that the integration of artificial intelligence and technology into operations will increase water quality and service. U.S. Water in 2019 launched Lumyn, a digital platform for proactive water system management. The “digital water” landscape is full of growth opportunities, as companies begin to launch platforms to increase water quality, monitor water usage, control costs and expand reach. According to Bluefield Research, total expenditures on digital water hardware, software and services will reach $10.8 billion in 2030 from $5.4 billion in 2019.
In a December 2020 report, Fitch Rating said that the U.S. water and sewer utilities are positively positioned heading into 2021 despite macroeconomic challenges. Fitch’s managing director Doug Scott said that utilities are working to limit cost escalation and manage through capital spending needs.
With this industry outlook in mind, let’s start our list of 10 best water stocks and ETFs to buy in 2021.
10. York Water Co (NASDAQ: YORW)
York Water offers drinking water, waste water management and related services. It operates in 49 municipalities within York and Adams Counties, Pennsylvania. The stock is down 5.9% over the last 12 months. In the third quarter, York posted a GAAP EPS of $0.36, beating the Street’s forecast by $0.02. Revenue in the period jumped about 4.2% to $14.26 million, above the Wall Street estimate by $0.26 million,
A total of 9 hedge funds tracked by Insider Monkey held stakes in York Water at the end of the third quarter.
Related Article: Is YORW A Good Stock To Buy Now?
9. California Water Service Group (NYSE: CWT)
California Water Service is one of the largest water utility companies in the U.S., serving 489,600 customer connections. It is the largest subsidiary of the California Water Service Group, which also includes Washington Water Service, New Mexico Water Service, Hawaii Water Service and CWS Utility Services. In the third quarter, California Water Service revenue jumped almost 30% and reached $304.11 million. GAAP EPS in the period came in at $1.94, above the Wall Street estimates by $0.83.
As of the end of the third quarter, 14 hedge funds tracked by Insider Monkey held stakes in California Water Service. Ian Simm’s Impax Asset Management owns 1.48 million shares of the company, worth 64.28 million.
Related Article: Is CWT A Good Stock To Buy Now?
8. Essential Utilities Inc (NYSE: WTRG)
Essential Utilities is one of the 10 best water stocks and ETFs to buy in 2021. The company offers drinking water and wastewater treatment infrastructure and services, serving about 5 million people across 10 states under its Aqua and Peoples brands. Essential Utilities reaffirmed its non-GAAP EPS guidance for 2020. The company expects the number to be at the top end of the guidance range of $1.53-$1.58.
In December, Essential Utilities’ subsidiary Aqua Pennsylvania bought wastewater assets of New Garden Township.
7. First Trust Water ETF (NYSE:FIW)
First Trust Water is one of the 10 best water stocks and ETFs to buy in 2021. It tracks major and important water and utility stocks, including IDEXX Laboratories, Xylem Inc., Algonquin Power & Utilities and Advanced Drainage Systems Inc. As of Feb. 1, 2021, the ETF was trading at around $72, up from about $62 per share during the same period last year. The ETF has a 3-Year Daily Total Return of 15.95%.
6. American States Water Co (NYSE: AWR)
California-based American States Water is a major utility company, with several government contracts for providing water and electric services. The company provides water to about 246,000 customers.
As of the end of the third quarter, 21 hedge funds out of 816 tracked by Insider Monkey were bullish on AWR. The total value of these stakes is $54.96 million. In the third quarter, Jim Simons’ Renaissance Technologies increased its hold in American States water by 96%, ending the period with 199,100 shares of the company. The total value of this stake is $14.92 million.
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Disclosure: None. 10 Best Water Stocks and ETFs to Buy in 2021 is originally published at Insider Monkey.