We recently published a list of Jim Cramer’s Latest Mad Money Episode: Top 10 Stocks to Watch. In this article, we are going to take a look at where American Water Works Company, Inc. (NYSE:AWK) stands against other stocks on Jim Cramer’s top stocks to watch list.

Jim Cramer in a latest program on CNBC made the case for investing in individual stocks to enjoy bigger gains when compared to investing in just the broader market index funds. Cramer said that while it’s “easy” to just park your money in index funds and let the market do the work, investing in individual stocks can give you some “serious gains.”

“I think you should own more than just an index fund because buying individual stocks with special characteristics is how you can rack up some really serious gains. That includes often scoring speculative stocks. Far too often, we become snobs when we talk stocks. So many experts think that if you venture past the index, you could fall off some sort of intellectual cliff that makes any gains null and void. It’s as if the huge swath of points you could have gained simply don’t count. But that, people, is nonsense.”

Cramer said banks do not “care” where the money comes from and neither should investors. He urged investors to not always avoid speculation.

“I come tonight to praise speculation. Here, I’m the only one on TV who actually does this, believe it or not, and to show you how well you could have done if you picked some high flyers for your portfolio and simply held them for the long ride, along with your prosaic, precious index funds.”

READ ALSO: Jim Cramer’s Latest Lightning Round: 11 Stocks to Watch and Jim Cramer on AMD and Other Stocks.

For this article we watched the latest programs of Jim Cramer aired on CNBC and picked 10 stocks he’s talking about. With each company we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

American Water Works Company, Inc. (NYSE:AWK)

Number of Hedge Fund Investors: 24

Jim Cramer was recently asked about AWK. Here is what he said:

“I think it’s fine. It’s consistent. When interest go down, this tends to go down with it. But take a look at the long term this one is pretty darn terrific I like it.”

American Water’s growth strategy is heavily focused on acquisitions, which has been a key factor driving the momentum of its stock price. According to Tracxn.com, the company has made 14 acquisitions, mainly targeting municipalities and small, privately owned waste and water management utilities. However, the company’s long-term debt has been increasing, surpassing $12.5 billion as of June 2024, compared to $11.7 billion at the end of 2023 and $10.92 billion in 2022.

The company’s debt-to-equity (D/E) ratio was 1.3 in June, marking the lowest ratio in a decade, though still above the industry average of 1.18 for regulated water utilities. Over the past 10 years, the company’s average D/E ratio has been 1.43. However, the company faces a liquidity challenge, as it had just $48 million in cash on hand at the end of June.

Aristotle Capital Value Equity Strategy stated the following regarding American Water Works Company, Inc. (NYSE:AWK) in its Q2 2024 investor letter:

“American Water Works Company, Inc. (NYSE:AWK): Founded in 1886 and headquartered in New Jersey, American Water Works is the largest and most geographically diverse water (~92% of regulated sales) and wastewater (~8%) utility in the United States. The company serves a population of approximately 14 million people across 14 states, with operations that span 53,700 miles of pipe, 540 water treatment plants, 1,200 groundwater wells, 1,700 pumping stations and 74 dams. The company expects to invest between $16 billion and $17 billion from 2024‐2028 as it replaces and upgrades infrastructure (often decades old) to improve the efficiency and sustainability of its operations.

High-Quality Business: Some of the quality characteristics we have identified for American Water Works include: · Stable and predictable revenues due to the essential need for water and its structure as a regulated monopoly with long‐term service contracts; · A history of growing cash returns to shareholders (~8.0% annualized dividend increases over the past five years); · Economies of scale that provide advantages in pursuing new customers via acquisitions; and · Constructive relationships with regulators that support timely cost recovery and the ability to gain approval for continued investments…” (Click here to read the full text)

Overall, AWK ranks 8th on our list of Jim Cramer’s top stocks to watch. While we acknowledge the potential of AWK, our conviction lies in the belief that under-the-radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AWK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.