In this article, we discuss the 10 best water stocks to buy now.
Commodity prices increased significantly during 2022 due to rising inflation and supply chain-related challenges. While crude oil and natural gas prices were in the limelight, there was little to no discussion about the outlook of one of the most important commodities: water. In the realm of water resources, stakeholders lack a systematic foundation for making economically sound decisions which have resulted in many governments struggling to develop integrated and sustainable water policies. As a result, water resources experience inefficient distribution. Even in nations that have the most sophisticated water legislation, the management of the water industry does not yet meet the standards befitting one of our most precious natural resources.
According to McKinsey, the US water system requires investment at a magnitude that has never been seen before. In the United States, leaks result in the loss of 14% to 18% of treated potable water every day. The water and sanitation infrastructure of the country was largely constructed in the late 90s. Ever since, the proportion of infrastructure investment by the central government has decreased, placing an increased burden on state and local governments as they try to balance competing financing objectives. Water-pipe substitution rates are expected to surge in 2035 to 16,000 – 20,000 miles of rebuilt pipes annually, according to the US Environmental Protection Agency (EPA). This is a four-fold increase over the present replacement rate of 4,000 to 5,000 miles yearly.
With the governments across the world acknowledging the importance of investment in the water sector, the initiatives to develop water and wastewater technologies are progressing. The 2021 Drinking Water and Wastewater Infrastructure Act allocated $55 billion to the upkeep and development of the United States water and wastewater facilities. The detection, repair, and inspection of lead service lines to ensure the supply of clean potable water are also among the government’s top priorities. An estimated $15 billion has been allocated to achieve this target, with $4 billion set up solely to address PFAS in drinkable water. The demand for traditional and tech-enabled water and wastewater services is rising among investors and the private sector. In contrast to the water industry’s total M&A transaction growth of 2% yearly between 2012 and 2017, it has now ramped up to 16% annually as of 2021. Furthermore, investment driven by venture capital and infrastructure funds has expanded more quickly, with a compound annual growth rate of 26% within the same time period. Notable companies like American Water Works Company, Inc. (NYSE:AWK), Ecolab Inc. (NYSE:ECL), and Danaher Corporation (NYSE:DHR) stand to benefit from the increase in investment in the water sector.
Photo by Silvan Schuppisser on Unsplash
Our Methodology
Let’s begin our list of the 10 best water stocks to buy now. We have selected companies from the consumer staples, industrials, or utility sectors that are in the business of sourcing, purification, and distribution of water. We have analyzed these companies’ fundamentals and looked into their growth catalysts. In addition, the hedge fund sentiment and analyst ratings have also been discussed. The stocks have been ranked in terms of the number of hedge funds having a stake in them as of Q2 2022.
Best Water Stocks to Buy Now
10. Global Water Resources, Inc. (NASDAQ:GWRS)
Number of Hedge Fund Holders: 5
Global Water Resources, Inc. (NASDAQ:GWRS) is a Phoenix, Arizona-based water utility company.
Global Water Resources, Inc. (NASDAQ:GWRS) reported better-than-expected quarterly results for Q2 2022 on August 10. Revenue increased by 7.3% YoY to $11.7 million and outperformed the consensus estimate of $11.6 million. Meanwhile, adjusted EPS was reported at nine cents, surpassing the analysts’ forecast of five cents. Global Water Resources, Inc. (NASDAQ:GWRS) offers an annual forward dividend yield of 2.13% as of August 24, translating into an annual dividend of $0.29 per share.
Global Water Resources, Inc. (NASDAQ:GWRS) stock is a bet on the water utility segment of Arizona. The southwestern US state is the 14th biggest state in terms of population and is expected to see its population increase by 26.1% or 1.9 million from 2020 to 2040, mainly due to net migration from other states. The population growth is the eighth-fastest among the 50 states. The state is also rising as a hub for the production of semiconductors and electric vehicles (EVs). In September 2021, Intel laid the foundation of two semiconductor manufacturing facilities in the state. Analysts expect all these factors to play in favor of Global Water Resources, Inc. (NASDAQ:GWRS) and increase the demand for its services.
Overall, 5 hedge funds held a stake in Global Water Resources, Inc. (NASDAQ:GWRS) as of Q2 2022.
9. American States Water Company (NYSE:AWR)
Number of Hedge Fund Holders: 13
American States Water Company (NYSE:AWR) is a San Dimas, California-based water and electric utility company. The company has 263,000 customer accounts for the provision of water services across California as of July 2022.
Due to the high cost of entry in the sector, American States Water Company (NYSE:AWR) benefits from a lack of competition which allows the company to enjoy sustainable growth. American States Water Company (NYSE:AWR) stock offers a forward annual dividend yield of 1.87% as of August 24. This translates into an annual dividend of $1.59 per share.
Following the Q2 2022 results, Jonathan Reeder at Wells Fargo increased the price target on American States Water Company (NYSE:AWR) from $75 to $90 and kept an Equal Weight rating on the stock on August 3. The analyst updated his model and incorporated higher peer group multiples to get to the new target price. In the last six months, the stock of American States Water Company (NYSE:AWR) has observed an increase of 4.1% as opposed to the S&P 500 Index remaining flat during the same period.
Holocene Advisors increased its holding in American States Water Company (NYSE:AWR) by over 100% during Q2 2022.
8. Badger Meter, Inc. (NYSE:BMI)
Number of Hedge Fund Holders: 18
Badger Meter, Inc. (NYSE:BMI) is a Milwaukee, Wisconsin-based provider of water flow measurement and water quality monitoring solutions. In the water flow measurement segment, the company provides flow metering and analytics services, while the water quality monitoring segment of the business brings into use optical and electrochemical sensors.
Badger Meter, Inc. (NYSE:BMI) reported better-than-expected Q2 2022 results on July 20. Revenue increased by 12.2% YoY to a record level of $137.83 million and outperformed the analysts’ forecast of $132.04 million. Meanwhile, the adjusted EPS of 57 cents surpassed analysts’ expectations of 52 cents. Badger Meter, Inc.’s (NYSE:BMI) annual forward dividend yield stands at 0.91% as of August 24.
Given the likelihood of a recession next year, experts consider Badger Meter, Inc. (NYSE:BMI) among the top water stocks to buy now. The water utility sector is considered recession-proof due to its critical and regulated nature. Furthermore, the higher probability of droughts and the aging water infrastructure in the US are expected to cause people to monitor the use of water more closely and increase the demand for Badger Meter, Inc.’s (NYSE:BMI) product.
Renaissance Technologies raised its stake in Badger Meter, Inc. (NYSE:BMI) by 199% during the second quarter of the year.
7. Essential Utilities, Inc. (NYSE:WTRG)
Number of Hedge Fund Holders: 22
Essential Utilities, Inc. (NYSE:WTRG) is a Bryn Mawr, Pennsylvania-based water utility company that provides drinking water and wastewater treatment infrastructure and services across Illinois, Indiana, New Jersey, Ohio, Pennsylvania, and Virginia.
In a note issued to investors on August 5, Ben Kallo at Baird increased the price target on Essential Utilities, Inc. (NYSE:WTRG) from $50 to $54 and maintained an Outperform rating on the stock. The analyst highlighted that the company has a strong pipeline given the pending rate cases in a few states. Furthermore, he appreciated the scale of the company and its initiative of spurring growth through takeovers.
During Q2 2022, Essential Utilities, Inc. (NYSE:WTRG) observed its revenue increase by 13% YoY to $448.8 million, surpassing the consensus forecast of $415.97 million. Meanwhile, the adjusted EPS of 31 cents was in line with the analysts’ forecast. The company revealed that it anticipates EPS growth to compound annually by 5% – 7% for the period between 2021 to 2024. Essential Utilities, Inc. (NYSE:WTRG) sees 2022 EPS to be in the range of $1.75 to $1.80 compared to analysts’ forecast of $1.78. Essential Utilities, Inc. (NYSE:WTRG) has an annual forward dividend yield of 2.25% as of August 24.
Of the 912 hedge funds in Insider Monkey’s database, Essential Utilities, Inc. (NYSE:WTRG) was held by 22 hedge funds as of Q2 2022.
6. Primo Water Corporation (NYSE:PRMW)
Number of Hedge Fund Holders: 24
Primo Water Corporation (NYSE:PRMW) is an Atlanta, Georgia-based manufacturer of water dispensers that are sold through retail stores and online channels of notable brands. The company generates recurring revenue by offering water gallons at more than 13,000 locations and self-service water refill drinking units at nearly 22,000 locations.
On August 10, Primo Water Corporation (NYSE:PRMW) announced a share repurchase program of $100 million. The company also declared a quarterly dividend of $0.07 per share, translating into an annual forward dividend yield of 1.98% as of August 24. Primo Water Corporation’s (NYSE:PRMW) management shared that the company’s balance sheet is strong enough to support growth ventures while returning value to the shareholders simultaneously.
During Q2 2022 results posted on August 11, Primo Water Corporation (NYSE:PRMW) saw its revenue increase by 8.6% YoY to $571.4 million, surpassing the consensus estimate of $549.15 million. Furthermore, the adjusted EPS of 21 cents was four cents higher than the analysts’ forecast. Primo Water Corporation (NYSE:PRMW) guided that it predicts Q3 2022 revenue to be in the range of $570 million to $590 million. The midpoint of $580 million is 3.5% higher than the consensus forecast of $560 million. Primo Water Corporation (NYSE:PRMW) also raised its full-year 2022 revenue growth guidance to a range of 12% – 14% as opposed to prior guidance of 9% – 10%.
In addition to Primo Water Corporation (NYSE:PRMW), stocks such as American Water Works Company, Inc. (NYSE:AWK), Ecolab Inc. (NYSE:ECL), and Danaher Corporation (NYSE:DHR) are also among our list of the ten best water stocks to buy now.
5. Xylem Inc. (NYSE:XYL)
Number of Hedge Fund Holders: 25
Xylem Inc. (NYSE:XYL) is a Rye Brook, New York-based designer and manufacturer of products and solutions related to water and wastewater management.
On August 3, Deane Dray at RBC Capital increased the price target on Xylem Inc. (NYSE:XYL) from $91 to $105 and maintained an Outperform rating on the stock. The analyst highlighted the company’s solid results for Q2 2022. During the three months ended on June 30, revenue was reported at $1.36 billion, beating the analysts’ forecast of $1.33 billion. Meanwhile, the adjusted EPS of 66 cents surpassed the analysts’ forecast of 54 cents. Xylem Inc. (NYSE:XYL) pays an annual dividend of $1.20 per share, which translates into an annual forward dividend yield of 1.21% as of August 24.
Not only did the company report strong Q2 2022 results, but it also increased its 2022 revenue and EPS guidance. Xylem Inc. (NYSE:XYL) now anticipates 8% – 10% YoY growth in revenue as compared to prior guidance of 4% – 6% YoY growth. The company reported revenue of $5.2 billion in 2021, and at the midpoint guidance of 9% YoY growth, Xylem Inc. (NYSE:XYL) anticipates 2022 revenue to be around $5.69 billion. Meanwhile, the average estimate provided by 19 analysts stands at $5.39 billion.
Xylem Inc. (NYSE:XYL) has a backlog of over $2 billion as of Q2 2022, and its book-to-bill ratio stands at 1.4. The company expects its margins to expand further as supply-chain-related challenges subside and the backlog is converted.
Impax Asset Management was the leading hedge fund investor in Xylem Inc. (NYSE:XYL) during Q2 2022.
4. American Water Works Company, Inc. (NYSE:AWK)
Number of Hedge Fund Holders: 29
American Water Works Company, Inc. (NYSE:AWK) is a New Jersey-based public utility company that provides water and wastewater services. The company has a headcount of over 6,400 employees.
American Water Works Company, Inc. (NYSE:AWK) is the biggest water utility company in the US. The company is on a growth path and has carried out more than 20 acquisitions since the start of 2021. Through one of its subsidiaries, American Water Works Company, Inc. (NYSE:AWK) also acquired Jefferson Utilities for $30 million in July. Not only is the company making acquisitions, but it is also improving its existing infrastructure by investing heavily in new technology. In May 2022, American Water Works Company, Inc. (NYSE:AWK) announced its plan to spend $3.4 million to upgrade its aging water pipelines in Pennsylvania.
American Water Works Company, Inc. (NYSE:AWK) outperformed earnings estimates for Q2 2022 as it reported an adjusted EPS of $1.20 compared to analysts’ forecast of $1.15. Meanwhile, for 2022, American Water Works Company, Inc. (NYSE:AWK) reiterated its EPS forecast of $4.39 to $4.49 as compared to the consensus forecast of $4.46. American Water Works Company, Inc.’s (NYSE:AWK) annual forward dividend stands at $2.62 per share as of August 24.
ClearBridge Investments shared its bullish outlook on American Water Works Company, Inc. (NYSE:AWK) in its Q2 2022 investor letter:
“We were active in positioning the portfolio during a volatile market, taking advantage of an attractive entry-point to buy American Water Works Company, Inc. (NYSE:AWK), which owns a high-quality regulated U.S. water utility portfolio, with above average EPS growth outlook driven by upgrade and expansion capex and tuck-in acquisitions.”
3. Pentair plc (NYSE:PNR)
Number of Hedge Fund Holders: 31
Pentair plc (NYSE:PNR) is a water infrastructure company that caters to the demand of retail consumers and industries. The retail consumer business targets swimming pool-related goods like filters, heaters, and pumps. Meanwhile, the industrial business provides fluid management services to food and beverage corporations and contributes 40% to the top line.
Joseph Giordano at Cowen gave Pentair plc (NYSE:PNR) stock a target price of $65 along with an Outperform rating in an investment note issued on July 27. The analyst highlighted that the company reported better-than-expected Q2 2022 results and narrowed its 2022 EPS guidance to $3.70 to $3.75 compared to the consensus forecast of $3.72. The analyst also added that the stock will trade in line with the sentiments of the housing market data until clarity is obtained for the 2023 pool season. Pentair plc’s (NYSE:PNR) annual forward dividend yield stands at 1.75% as of August 24.
Overall, analysts believe Pentair plc (NYSE:PNR) is well-positioned in the water industry as the company is introducing new segments such as Manitowoc Ice to its business model and investing in technology to improve its efficiency levels.
Of the 912 hedge funds in Insider Monkey’s database, Pentair plc (NYSE:PNR) was held by 31 hedge funds as of Q2 2022.
2. Ecolab Inc. (NYSE:ECL)
Number of Hedge Fund Holders: 43
Ecolab Inc. (NYSE:ECL) is a Minnesota-based developer and provider of water cleaning, purification, and treatment services to three million customers spread across 40 industries.
The sanitation and hygiene conglomerate company came into the limelight after the billionaire philanthropist Bill Gates reported a stake of $25.4 million or 144,000 shares in the company on August 17. Ecolab Inc. (NYSE:ECL) is making significant efforts to keep water safe from bacteria and pathogens and is keeping its facilities up to the regulatory authorities requirements. Ecolab Inc. (NYSE:ECL) pays a quarterly dividend of $0.51 per share, translating into an annual dividend yield of 1.21% as of August 24.
Post the better-than-expected Q2 2022 results, David Begleiter at Deutsche Bank gave Ecolab Inc. (NYSE:ECL) stock a target price of $180 and maintained a Buy rating on the stock on July 27. Experts believe that during the inflationary period, Ecolab Inc. (NYSE:ECL) has been able to offset the impact of raw material headwinds through better pricing power.
Ecolab Inc. (NYSE:ECL) was discussed in the Q1 2022 investor letter of Baron Funds. Here’s what the investment management firm said:
“Lastly, we added to our position in the leading water, hygiene and infection prevention company, Ecolab Inc. (NYSE:ECL), as the stock sold off on concerns over rising raw material costs. We believe the sell-off is overdone as Ecolab’s strong competitive positioning and proven pricing power would enable it to offset the rising costs (though with a lag). We think that the company will continue benefiting from the secular growth trends towards sustainability, while still having a long runway for growth with only an 8% share of its estimated $147 billion addressable market.”
1. Danaher Corporation (NYSE:DHR)
Number of Hedge Fund Holders: 83
Danaher Corporation (NYSE:DHR) is a Washington, D.C-based diversified conglomerate. The company has a diverse portfolio of water quality optimization entities under the Environmental and Applied Solutions segment of the business that plays an integral role at every stage of the water cycle.
Through one of its subsidiaries, Pall Corporation, Danaher Corporation (NYSE:DHR) intends to be a key player in the Legionella testing market. The testing market is expected to compound annually by 8.2% from 2022 to 2027 to $439 million, according to Illinois-based research firm MarketsandMarkets. The bacteria are known for causing Legionnaires’ disease, a severe form of pneumonia that causes 8,000 to 18,000 deaths in the US annually.
Danaher Corporation (NYSE:DHR) has been termed a great stock to hold during economic uncertainty by Brendan Leucke at Bernstein. On August 16, Leucke gave Danaher Corporation (NYSE:DHR) stock a target price of $340 along with an Outperform rating. Danaher Corporation (NYSE:DHR) offers strong business fundamentals and has an annual forward dividend yield of 0.35% as of August 24.
Cooper Investors shared its stance on Danaher Corporation (NYSE:DHR) in its Q1 2022 investor letter. Here’s what the firm said:
“This combination of attributes was not in favour during a quarter where the market rotated into larger, more traditional index heavyweights that, while growing more slowly and generating lower returns on capital, typically trade on lower headline multiples. In Healthcare for example, we saw portfolio holdings Danaher fall 10-15% in the quarter. Given the relative business quality and growth prospects for a life sciences capital allocator champion like Danaher versus a large diversified pharma company, we think this period of underperformance is likely more a blip than a trend.”
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Disclose. None. 10 Best Water Stocks to Buy Now is originally published on Insider Monkey.
