Impax Asset Management Is Betting Heavily on Water Stocks

Ian Simm‘s Impax Asset Management has a unique investment philosophy in that it seeks out mispriced companies that are set to benefit from the long-term trends of rising global populations and wealth, changing demographics, urbanization, increasing consumption, and the resultant increases in resource demand. Hence, it is no surprise that the industrials sector (and in particular, water stocks) has formed the largest part of the fund’s portfolio for quite awhile. At the end of March, the sector accounted for 52% of the value of the fund’s $1.87 billion portfolio, while a year earlier that figure stood at 60%. The fund’s investment strategy arouses curiosity when it comes to the holdings that it believes will capitalize on the aforementioned trends, so without further ado, let’s delve into the five stocks that Impax Asset Management likes the most as of March 31.

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#5 Danaher Corporation (NYSE:DHR)

 – Shares Owned by Impax (as of March 31): 690,128

 – Value of Holding (as of March 31): $65.55 Million

The fund’s holding largely remained unchanged during the first quarter, standing at 690,128 shares on March 31. Danaher Corporation (NYSE:DHR)’s stock price has gained 5.7% this year amid solid first quarter financial results that beat both the top and bottom-line estimates of analysts. The $68 billion global science and technology innovator recently announced that it expects its spin-off of Fortive Corporation to be completed by July 2. First Eagle Investment Management, led by Mehdi Mahmud, was also bullish on Danaher Corporation (NYSE:DHR) during the first quarter, having hiked its stake by 30% to 3.99 million shares.

#4 Agilent Technologies Inc (NYSE:A)

 – Shares Owned by Impax (as of March 31): 1.65 Million

 – Value of Holding (as of March 31): $65.95 Million

Impax boosting its Agilent Technologies Inc (NYSE:A) holding by 17% during the first quarter, with the $14.2 billion medical equipment and technology company being accounted for the lion’s share of the fund’s investment in the healthcare sector. At last week’s analytica Conference in Germany, Agilent Technologies Inc (NYSE:A) disclosed the launch of InfinityLab, which is a product family of liquid chromatography instruments, columns and supplies. According to the company, the new product will enable tracking of critical method information for high data confidence. William Von Muefflings‘ Cantillon Capital Management trimmed its stake in the company by 4% during the first trimester, to 4.62 million shares.

We’ll take a look at Impax Asset Management’s top-3 stock picks on page two.

#3 Watts Water Technologies Inc (NYSE:WTS)

 – Shares Owned by Impax (as of March 31): 1.52 Million

 – Value of Holding (as of March 31): $83.67 Million

Impax raised its stake in the industrial valve manufacturer by 11% during the first quarter, following which its holding amassed about 5.32% of Watts Water Technologies Inc (NYSE:WTS)’s outstanding float. Shares of Watts Water have been on a strong bull run this year, rallying by nearly 13% so far. On May 4, the company reported its first quarter earnings, declaring EPS of $0.57 on revenue of $344 million, topping analysts’ earnings expectations of $0.49 per share and their revenue expectations of $337 million. It seems that the company’s ongoing transformation and restructuring efforts are bearing fruit, as its margins improved significantly during the quarter, while all the regions showed organic growth. With 1.97 million shares, Robert Joseph Caruso‘s Select Equity Group was the largest stockholder of Watts Water Technologies Inc (NYSE:WTS) within our database at the end of last year.

#2 American Water Works Company Inc (NYSE:AWK)

 – Shares Owned by Impax (as of March 31): 1.30 Million

 – Value of Holding (as of March 31): $89.40 Million

On the other hand, Impax slashed its holding in another water company during the first quarter, by 13%. Shares of American Water Works Company Inc (NYSE:AWK) have surged by almost 25% this year and after four consecutive years of double-digit dividend increases, the company now sports an annual dividend yield of 1.88%. American Water Works delivered first quarter EPS of $0.46, which was in-line with estimates and marked a 4.6% year-over-year increase. The company’s quarterly revenue of $743 million also managed to beat expectations, by $15.71 million, and was 6.4% higher year-over-year. Robert B. Gillam‘s McKinley Capital Management also reduced its American Water Works Company Inc (NYSE:AWK) holding during the first quarter, by 50% to 37,000 shares. This probably had more to do with profit taking than anything else, which may have also been the reasoning behind Impax’s decision to trim its stake during the quarter.

#1 Xylem Inc (NYSE:XYL)

 – Shares Owned by Impax (as of March 31): 2.42 Million

 – Value of Holding (as of March 31): $91.73 Million

Impax’s new top holding was also trimmed during the January-to-March period, by 5%, and amassed about 1.25% of the outstanding float of the company, which offers engineered technologies for the water industry. Xylem Inc (NYSE:XYL)’s stock has also been on a tear this year, rising by more than 17%. Xylem Inc (NYSE:XYL) not only beat top and bottom-line expectations with its financial results for the first quarter, it also raised its full-year adjusted EPS outlook to reflect interest savings from debt financing. Brad Dunkley and Blair Levinsky‘s Waratah Capital Advisors was probably cashing in on the stock’s strong first quarter performance, as it reduced its Xylem holding by 13% during the quarter to about 42,700 shares.

Disclosure: None