Top Water Stocks to Invest In

By Kirsteen Mackay

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Are you looking to invest in water stocks? Here's an overview of some top US water stocks, including AWK, FELE, XYL, WTRG, and AWR.

In some parts of the world, water is abundant. Elsewhere there’s a drought. Yet, water is vital to life, and we need it to drink, wash, cook, clean, grow, and survive.

Global water distribution is unfair, and solving water issues from shortages to floods is hugely important to industry.

The impact on water availability affects food distribution, health and social wellbeing. Therefore, water stocks are capturing investor interest as uncertainty shakes the foundations of modern life.

The pandemic, war and climate change highlight the fragility of globalization, and nothing poses a risk to life, quite like a lack of water.

Investing in water stocks ticks the ESG box while offering a steady income from dividends and the likelihood of long-term demand and earnings growth.

Here are a selection of stocks involved in the water business.

Company Market Cap P/E P/BV P/S Dividend
American Water Works Company, Inc. (NYSE: AWK) $28.4bn 22.5 3.9 1.5%
Franklin Electric (NYSE: FELE) $3.9bn 26 4.1 0.92%
Xylem Inc (NYSE: XYL) $15.9bn 37.7 4.9 1.35%
Essential Utilities (NYSE: WTRG) $12.6bn 28.8 2.35 2.22%
California Water Service Group (NYSE: CWT) $3bn 29.4 2.63 1.73%
American States Water Company (NYSE: AWR) $3.1bn 33.8 4.63 1.7%
SJW Group (NYSE: SJW) $2bn 33 1.96 2.14%
Middlesex Water Company (NYSE: MSEX) $1.7bn 49 4.87 1.14%
York Water Company (NASDAQ: YORW) $575m 33.8 3.78 1.77%

American Water Works Company Inc (NYSE: AWK)

American Water Works Company (NYSE: AWK) is a public utility company providing water and wastewater services.

Between 2018 and the end of 2021, AWK steadily climbed higher. Unfortunately, the tide has turned. Year-to-date, AWK stock is down 15%.

However, many see this as a buying opportunity as this is a company relied upon by the military and 14 million people in 24 states. The company has a good track record of growing its earnings and raising its dividend. Today the dividend yield is 1.5%.

The company is committed to investing in upgrading and renewing waterworks where aging infrastructure desperately needs replacing. This will improve efficiencies in the long run.

Franklin Electric (NASDAQ: FELE)

Franklin Electric (FELE) is a big player in manufacturing water and fuel pumping systems. It sells water pumping systems in residential, agricultural, and other industrial end markets to move fresh and wastewater. The Company also sells groundwater equipment to well installation contractors.

With a growing global footprint, the company has also evolved into a top supplier of submersible fueling systems at gas stations, making pumps, pipes, electronic controls, and monitoring devices.

The FELE share price enjoyed a 120% rise between April 2020 and November 2021. Since then it’s declined 12%.

However, last year, the company enjoyed strong sales, rising through volume, price, and acquisitions. The company's consolidated gross profit was $576.1m, up 33% year-over-year.

Diluted earnings per share (EPS) were $3.25, up from $2.14. in 2020. 

Franklin saw sales of groundwater pumping equipment increase by 21% last year vs. 2020.

Risks to investing in FELE shares

Like many businesses, Franklin Electric faces margin pressure as inflation bites and supply chain disruption continues.

Franklin Electric’s sales are also linked to the oil and gas industry. There’s reason to believe the business could boom with energy prices soaring. But if demand slows as the world slips into a recession, the oil price could come back down, reducing demand for pumps.

Demand for residential and agricultural water systems is affected by weather-related adversities, including flooding and drought. Plus, the company sees an opportunity in emerging markets where municipal water systems are lacking. This provides room for growth but comes with the additional risk and costs associated with operating in developing jurisdictions.

Xylem Inc (NYSE: XYL)

Global water technology company Xylem Inc (NYSE: XYL) is involved in all aspects of the water industry. It designs and manufactures technologies and infrastructure for drinking water, wastewater and protecting the environment.

Its customers come from the commercial, residential, and industrial end markets in the US, China and India.

Xylem also uses technology to detect and design the intelligent use and conservation of water and energy resources.

The company was founded in 2011 in New York and recently announced plans to move its headquarters to Washington DC.

Xylem delivered revenue of $5.2bn in 2021, up 6.5% year-over-year. The company anticipates revenue growth of 1% to 3% this year. Unfortunately, this outlook disappointed shareholders leading the share price to suffer.

Industrial revenue increased by around 14% in 2021, and it sees this continuing in 2022 as activity rebounds. For instance, the mining industry demands dewatering systems to remove water from the production process.

XYL stock is down 11% in the past year and 24% year-to-date. Supply chain disruption, soaring costs, and semiconductor shortages continue to weigh on company progress.

Essential Utilities (NYSE: WTRG)

Essential Utilities (NYSE: WTRG) is a US-facing water services company. It provides drinking water and wastewater treatment, infrastructure, and natural gas services. 

The WTRG share price has been volatile over the past year and is down 9% year-to-date. It is a $12bn company with a 2.2% dividend yield. 

In 2021, the company invested over $1bn in improving infrastructure. It also retired or replaced 470 miles of pipeline and made two water and wastewater acquisitions.

Essential Utilities uses growth through acquisition as a part of its strategy to meet industry challenges. The company remains on track to annually increase customers by 2% to 3% through acquisitions and organic customer growth.

California Water Service Group (NYSE: CWT)

California Water Service Group (NYSE: CWT) stock is down nearly 20% year-to-date. With a $3bn market cap, CWT is the third-largest publicly traded water utility company in the United States. 

The company also employs a growth through acquisition strategy.

Net income in 2021 came in at $101.1m, up from $96.8m in 2020. Diluted earnings per share decreased $0.01 to $1.96 or 0.5% from 2020.

In January, the Board raised the CWT dividend for the 55th consecutive year. Company Dividends have been paid for 76 consecutive years. The yield today is 1.7%.

American States Water Company (NYSE: AWR)

American States Water Company (NYSE: AWR) is a water and electricity utility company. With demand for both water and electricity expected to grow, this seems an attractive investment.

AWR stock is up 14.9% in the past year and down -16.8% year-to-date. It offers a 1.7% dividend yield.

Recent analyst coverage sees AWR stock price targets reiterated or cut. The current consensus rating is Hold.

H2O Innovation (TSX: HEO)

Canadian small-cap H2O Innovation (TSX: HEO) designs water treatment solutions from membrane filtration technology. H2O celebrated World Water Day by listing on the Toronto Stock Exchange on March 22. 

The company has a specialty chemicals business in the UK which is seeing growing demand. To keep up, H2O has doubled its footprint at this UK facility in just ten months at an investment cost of $1.7m.

HEO stock has attracted analyst coverage with a consensus rating it a Buy with a target share price of CAD$2.41.

Nasdaq Veles California Water Index (NQH2O)

Heightened climate demands, growing population, and increasing agricultural production are taking a toll on California’s water resources.

The Nasdaq Veles California Water Index (NQH2O) seeks to track the spot rate price of water rights in the state of California. The index tracks the price of water rights across the five largest and most actively traded regions in the state of California.

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In this article:

Topics:
Water
Water Utilities
Industries:
Industrials
Companies:
American Water Works Company
Franklin Electric
Xylem
Essential Utilities
California Water Service Group
American States Water
Middlesex Water Company
York Water Co

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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