As water scarcity becomes a critical global issue, water stocks are gaining significant attention from investors. By 2030, the demand for freshwater is projected to exceed supply by 40%. This growing need is driving investment in water-related companies, making them attractive options for those looking to capitalize on long-term trends.
For June 2024, seven water stocks stand out as strong buy candidates, backed by robust performance and strategic positioning in the market. These companies are well-placed to benefit from the increasing focus on water conservation.
One positive of investing in these water stocks is that these companies are in the utilities sector. This sector is known for its stability and many of these companies pay strong dividends to investors. These companies could then become a valuable addition to an investors’ portfolio, especially if one values income generation potential.
This article explores these top-rated water stocks, examining the factors contributing to their strong buy ratings and their potential for sustained growth.
American Water Works (AWK)
American Water Works (NYSE:AWK) is the largest, most geographically diverse publicly traded U.S. water and wastewater utility company.
In Q1 2023, AWK reported operating revenues of $938 million, an increase from $886 million in Q1 2022. Net income was $174 million, up from the same period last year. Earnings per share (EPS) were 81 cents compared to 76 cents in Q1 2022.
AWK plans to invest approximately $3.1 billion in 2024 to upgrade and maintain its infrastructure. The investment focuses on replacing aging pipes, improving water treatment facilities, and enhancing customer service technology. This is part of a larger $16 billion capital investment plan from 2024 to 2028.
AWK expects its 2024 EPS to be in the range of $4.72 to $4.82. The company anticipates that regulated businesses will drive most of the growth, supported by continued infrastructure investment and rate increases approved by regulatory bodies.
Essential Utilities (WTRG)
Essential Utilities (NYSE:WTRG) provides water, wastewater and natural gas services to over 5 million people in 10 states in the U.S.
In July 2023, WTRG acquired a wastewater system in Ohio, adding a significant number of new customers. The purchase supports the company’s strategy of expanding through regulated acquisitions.
WTRG invested approximately $1.2 billion in 2023 in infrastructure improvements last year. This includes the replacement of old pipes, upgrading water treatment facilities and expanding natural gas distribution networks. The company aims to enhance service reliability and meet increasing demand from customers.
Analysts that cover WTRG expect its 2024 EPS to be in the range of $2.11. The company anticipates that growth will be driven by continued infrastructure investments and rate adjustments approved by regulatory bodies.
WTRG stock has a consensus buy rating from analysts. The average price target is $56, representing an upside of approximately 15% from the current price.
Xylem (XYL)
Xylem (NYSE:XYL) is a leading global water technology company, enabling customers to transport, treat, test and efficiently use water.
XYL could be among the best water stocks investors should have on their radars due to its capital growth potential and expanding capital expenditures.
In March 2023, Xylem announced the acquisition of a smart water solutions company, expanding its capabilities in water data analytics and management. Yet XYL plans to invest significantly in research and development in 2024, focusing on enhancing its smart water solutions and advanced analytics. The company aims to improve water management efficiency and sustainability for its customers.
Analysts that cover Xylem expect its 2024 EPS to be in the range of $4.26. The company anticipates growth driven by increased demand for water infrastructure and smart water solutions.
Pentair (PNR)
Pentair (NYSE:PNR) offers water treatment solutions and sustainable innovations to enhance residential, commercial and industrial water systems.
In Q1 2023, Pentair’s Water Solutions segment saw a 32.2% increase in net sales, reaching $272 million. The Industrial & Flow Technologies segment also reported a 9.4% increase in net sales to $392 million. However, the Pool segment experienced a decline of 16.3% in net sales compared to the previous year.
Pentair plans to continue investing in its transformation initiatives aimed at driving efficiencies and growth across all segments. The company focuses on pricing strategies and supply chain improvement.
For 2024, Pentair expects adjusted EPS to be in the range of $3.60 to $3.70. The company anticipates stable growth driven by continued demand for water treatment and industrial flow solutions despite potential market challenges.
Pentair stock has a consensus buy rating from analysts with an average price target around $70. It indicates a potential upside of approximately 15% from the current price.
Veolia Environnement (VEOEY)
Veolia Environnement (OTCMKTS:VEOEY) is a French transnational company with operations in water management, waste management and energy services.
The water stock secured a $320 million water technology contract in the UAE, which underscores its growing presence in the Middle East and its commitment to providing advanced water management solutions.
Veolia plans to continue its focus on growth and innovation in 2024, with a specific emphasis on enhancing its digital and ecological transformation solutions.
For 2024, Veolia has reaffirmed its guidance of achieving EBITDA growth of 5% to 7%. The company expects continued robust performance in its core segments, supported by ongoing initiatives in sustainable development and resource management.
VEOEY might be a good pick for U.S. investors wanting to diversify their portfolios outside of the U.S. It would also provide exposure to emerging markets in the UAE.
Middlesex Water Company (MSEX)
Middlesex Water Company (NASDAQ:MSEX) provides regulated and non-regulated water and wastewater utility services in New Jersey, Delaware and Pennsylvania.
The company has been actively investing in upgrading its treatment plants and expanding its service infrastructure in Delaware to meet growing customer needs.
Middlesex Water plans to continue its focus on infrastructure investments and service improvements in 2024. The company aims to enhance its water treatment facilities and expand its lead service line replacement initiative. Capital expenditures are expected to support these strategic initiatives.
Analysts expect that Middlesex Water’s EPS to be in the range of $2.28 to $2.40. The company anticipates stable revenue growth driven by ongoing infrastructure investments and operational efficiencies.
MSEX could be a strong pick for investors who want to invest in U.S. water utilities stocks in the U.S. Given its strong regional presence in the market, the utility could be one of the best options for investors on this list.
California Water Service Group (CWT)
California Water Service Group (NYSE:CWT) is the third-largest publicly traded water utility in the U.S., providing high-quality services to customers in California, Washington, New Mexico and Hawaii.
In April 2024, California Water Service Group benefited from a favorable decision in the 2021 California General Rate Case, which significantly boosted its financial results. The company has also been proactive in addressing PFAS contamination and complying with new water quality standards.
California Water Service Group plans to continue investing in infrastructure and technology to improve service reliability and efficiency. Capital expenditures are expected to support infrastructure improvements and the installation of advanced water treatment systems.
Analysts expect that CWT’s EPS will decrease slightly to $2.38. That is likely due to CWT’s planned capital investments and regulatory requirements.
Still, it may be expanding CAPEX that allows CWT to deliver strong returns in the future, so this could be seen as a worthwhile investment from an investor’s point of view.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.