Liquid Assets: Tapping Into the Market Potential of Water Stocks

Investing in water is investing in life's most basic need, yet it's an opportunity that's often overlooked. Even though 70% of our planet is covered in water, a mere 2.5% is fresh, and even less is actually accessible for use. This stark contrast between the illusion of abundance and the reality of scarcity presents a unique opportunity for investors looking to tap into essential resources. As the global demand for fresh water escalates due to population growth and environmental pressures, water-related stocks emerge as an attractive option.

The surge in demand for fresh water is driven by factors like population growth, urbanization, and the intensification of agriculture. With the United Nations projecting that global water demand will exceed supply by 40% by 2030, the necessity for substantial investments in water infrastructure and technology has never been clearer. This scenario reinforces not only the importance of securing water for consumption but also the need for effective wastewater treatment and sustainable management practices.

Complicating matters, climate change is worsening water supply challenges, with more frequent and severe droughts and floods undermining the reliability of water resources. In response, the water industry is pivoting towards technological innovation and sustainability. Advances in smart irrigation systems, water recycling, and energy-efficient desalination processes are at the forefront of efforts to address these challenges, proving critical for sustainable water management.

With all that said, investing in water stocks offers a balanced mix of stability and growth potential. Water utilities, often considered defensive stocks, provide steady revenue streams and dividends, making them appealing during economic uncertainties. At the same time, companies specializing in water technology and infrastructure are poised for growth, aligned with the global push towards sustainable water solutions. This dual appeal makes water stocks a compelling choice for investors eyeing both security and growth in a market underpinned by an indispensable resource.

In the following sections, we'll dive into some of the most promising water-related stocks for 2024. We've curated a list of companies that stand out for their innovation, sustainability efforts, and potential to provide investors with both resilience and growth opportunities in the water market.

Ferguson PLC $FERG

42B Market Cap 

Brief Overview

Ferguson plc is a distributor in North America, specializing in waterworks and infrastructure solutions. Its Ferguson Waterworks division offers products and services for the water, sanitary sewer, and stormwater management industries, catering to both the public and private sectors. The company provides a range of services, including pipe fusion, hydrant repair, and water metering. Founded in 1953 and headquartered in the United Kingdom, Ferguson serves a variety of contractors and water authorities across the nation.

Company Highlights

• Profit Margins: Strong profit margins compared to industry averages, indicating efficient operations and cost management.
• Growth Through Acquisitions: Ferguson's recent strategic acquisitions aim to broaden its market presence, potentially driving future revenue increases
• Technology Integration: Investments in technological collaborations are aimed at streamlining operations, which could enhance efficiency and customer satisfaction.

Xylem Inc. $XYL

31B Market Cap

Brief Overview

Xylem Inc, established in 2011 and based in Washington, D.C., operates as a water technology company providing engineered products and solutions globally. It is divided into four segments: Water Infrastructure, Applied Water, Measurement & Control Solutions, and Integrated Solutions and Services, offering a suite of products from pumps and filtration systems to smart meters and analytical instruments catering to water, wastewater, and energy applications.

Company Highlights

• Revenue Growth: The 33.36% growth in revenue during 2023 showcases Xylem’s expanding market presence and effective growth strategy.
• Dividends: With a history of dividend increases over the years, including a 10% raise in the latest year, Xylem demonstrates a strong track record of providing shareholders with consistent and growing returns
• Transformation and Integration: The successful recent acquisition of Evoqua and integration indicate strategic expansion and future cost synergies that could further enhance financial performance.

American Water Works Co. Inc. $AWK

23B Market Cap

Brief Overview

American Water Works Co. Inc. is a utility company specializing in water and wastewater services. Founded in 1886 and headquartered in Camden, New Jersey, the company caters to around 3.5 million active customers across 14 states. It operates a vast network of treatment plants, mains, wells, and storage facilities to serve residential, commercial, industrial, and public authority customers and offers services to the U.S. government and municipalities.

Company Highlights

• Expansive Customer Base: American Water Works serves a large and diverse customer base across multiple states, providing resilience and stability to its revenue streams.
• Industry Consolidation Potential: The company is well-placed to capitalize on consolidation opportunities within the highly fragmented water utility industry, potentially leading to further market share growth.
• Financial Strength: The company's financials demonstrate efficient fiscal management, with a solid profit margin and a healthy return on equity.
• Dividends: The company's consistent history of dividend increases reflects its commitment to providing shareholder value.

Primo Water Corporation $PRMW

2.8B Market Cap

Brief Overview

Primo Water Corporation specializes in water solutions for residential and commercial use. Renamed from Cott Corporation in March 2020, Primo offers a variety of products, including bottled water and dispensers, across brands like Crystal Springs and Mountain Valley. Its business model includes direct home and business delivery, retail exchange, and self-service refill stations, complemented by water filtration units sold through numerous retail locations and online.

Company Highlights

• Diverse Product Offering: Primo Water’s broad range of products, from bottled water to water dispensers and coffee, meets various consumer needs and taps into different market segments, enhancing its revenue streams.
• Razorblade Revenue Model: The company’s razorblade business model, selling dispensers (the "razor") and recurring water supply (the "blades"), promotes customer retention and consistent revenue.

• Expansion Capabilities: Primo Water’s history of strategic acquisitions points to its capacity for growth and potential to consolidate its presence in the fragmented water services market.

The York Water Company $YORW

520M Market Cap

Brief Overview

The York Water Company, founded in 1816 and headquartered in York, Pennsylvania, is one of the oldest investor-owned utilities in the United States. The company focuses on sourcing, purifying, and distributing drinking water and also manages wastewater collection and treatment systems. Serving various industries within 56 municipalities across four counties in south-central Pennsylvania, it prides itself on a stable supply with two reservoirs holding over 2 billion gallons of water.

Company Highlights

• Historic Dividend Record: With over 200 years of history, The York Water Company has a strong tradition of paying dividends, emphasizing its reliability as an income-generating investment.
• Planned Future Investments: Projected investments in the coming years for main extensions and facility improvements demonstrate forward-thinking management.
• Strong Financial Performance: The York Water Company has shown a steady increase in revenue and net income over several years, highlighting its ability to grow and maintain profitability in a competitive market.