Investing in utilities can be quite safe and stable, but usually, returns are not very high. This is why many of these companies offer elevated dividend yields to attract shareholders. However, some analysts and investors have argued that water companies are set to post strong upside as water supplies tighten. But, what differentiates water companies between each other? How can an individual investor know which one to pick for better returns? One of the ways to narrow down the screening process is to look at the smart money sentiment towards the companies in question. Having this in mind, we have compiled a list of the most popular water stocks among the investors we track at Insider Monkey.
An everyday investor doesn’t have the same resources and capabilities to analyze different publicly-traded companies as hedge funds do. This is why it is a good idea to see what stocks hedge funds like the most and try to imitate some of their bullish moves in an attempt to reap market-beating returns. At Insider Monkey, we follow the activity of several hundred of the best-performing hedge funds as part of our strategy. We analyze their 13F filings and use the data to see what stocks they are collectively bullish on. Through extensive research we have determined that the best approach to outperform the broader indices is to follow hedge funds into their top small-cap ideas. In our backtests, a portfolio of the 15 most popular small-cap stocks generated monthly alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see more details here).
American States Water Co (NYSE:AWR)
Let’s start with American States Water Co (NYSE:AWR), the least popular water stock in this list, counting just nine funds from our database holding shares at the end of March. The stock has gained around 7% since the beginning of April, but is close to flat year-to-date. For the second quarter, American States Water reported revenue of $111.95 million, missing the estimates of $113.01 million, but EPS of $0.45 was higher than the expected $0.44.
Aqua America Inc (NYSE:WTR)
Next up is Aqua America Inc (NYSE:WTR), in which nine funds tracked by held shares at the end of March, up from seven a quarter earlier. The stock has gained over 10% since the beginning of the year and, based on the quarterly dividend of $0.19, it has a dividend yield of 2.33%. The company missed revenue expectations for the past three quarters, including the second quarter of 2016, for which Aqua America posted revenue of $203.9 million, versus estimates of $209.6 million, while EPS of $0.33 was in line with analysts’ expectations. Chuck Royce’s Royce & Associates reported ownership of 608,100 shares of Aqua America as of the end of the second quarter.
On the next page we will look into three more water stocks that hedge funds liked going into the second quarter of the year.