Water stocks have been great performers over the last few years, and there’s a good reason why. A good friend of mine who lives on top of a mountain in Vermont doesn’t have consistent access to clean water. No, he’s not the Grinch, living alone in some cabin with his dog. He lives with his family adjacent to a popular ski resort, surrounded by neighbors who are stuck with the same problem. The water quality has improved of late, but they pay through the nose for it – like more than $100 a month. Crazy.
Most of us take water for granted. It’s the most abundant resource on the planet after all, and it’s normally cheap - $2 per 1,000 gallons, for the average American. But all I have to do is utter the words “Flint, Michigan” or “Colorado River water shortage” to remind you that not everyone is so fortunate, even here in the U.S.
Globally, 703 million people lack access to clean water; 2.1 billion people don’t have clean drinking water in their homes. Progress has been made, for sure; between 1990 and 2015, 2.6 billion people in developing countries gained access to clean drinking water. But the world’s surging population and increased industrial demand combined with the effects of global warming—extreme drought in some areas, extreme flooding in others—means that 4 billion people, more than half the world’s population, experience water scarcity for at least one month each year, according to UNICEF.
With clean water becoming an increasingly scarce resource, water is more valuable than it’s been in decades. And so are the companies that supply it.
That’s why water stocks have been strong performers over the last few years, outperforming the S&P 500 over the last two- and five-year periods. Just look at the returns of these five water stocks and ETFs over the past two years, all of which have handily outpaced the more than stellar 38.8% return in the S&P 500 during that time:
5 Water Stocks and ETFs for Beating the Market
- Ecolab (ECLB): 51.6%
- First Trust Water ETF (FIW): +49%
- Invesco Water Resources ETF (PHO): +51.5%
- Tetra Tech (TTEK): +75.1%
- Xylem Inc. (XYL): 91.5%
Not all water stocks and ETFs have outperformed, of course. But all but a couple of the 20 or so that I looked at are up in the last two years.
Tetra Tech is a consulting and engineering firm that specializes in “water, environment, sustainable infrastructure, renewable energy, and international development” with a heavy emphasis on safety and sustainability; Ecolab is a large-cap water treatment, hygiene and infection prevention solutions provider with services in 170 countries; Xylem creates smart technology for water and wastewater solutions that grew revenues by 40% and earnings per share by 50% in the most recent quarter. The other two are ETFs whose holdings include some of the top water stocks from around the world.
The three companies are growing: California Water Service Group was on track for 5.8% revenue growth in 2022 and another 5% improvement this year; Tetra Tech has almost identical top-line growth numbers (5.8% this year; 5.6% next year); and American States Water is projected at 2.7% growth in 2022 and 2.8% growth in 2023.
Like most utility stocks, all three water stocks pay a dividend, albeit a modest one (all three yield 1% or less). And all three are expected to grow earnings by double-digit percentages this year, by an average of about 16%. Their revenues are all set to expand this year as well.
Bottom line: The water crisis is clearly on Wall Street’s radar, and the institutions are investing in the push to solve it.
Until then, you can profit by investing in the companies trying to do the solving.
[author_ad]
*This post is periodically updated to reflect market conditions.
