Stocks & Forex
The 7 Most Promising Water Industry Stocks to Buy in 2023
Although the technology may get most of the attention, investors should consider throwing some spare funds at water stocks to buy. With water representing a core commodity for various industries, its supply, and access will likely play significant roles in both the economy and geopolitical relations.
For example, while seemingly everybody loves talking about electric vehicles, few appreciate the fact that lithium production consumes an ordinate amount of water. Of course, the problem here is that we’re suffering from a global water shortage. Thus, from a purely cynical perspective, water utility stocks should rise based on supply and demand. Curiously, though, the sector doesn’t get much love. Therefore, you may consider getting in before the herd does for these best water stocks for 2023.
|AWK||American Water Works||$148.25|
|CWT||California Water Service||$56.08|
York Water (YORW)
I’m going to start off with a confidence booster among water stocks to buy with York Water (NASDAQ:YORW). An investor-owned public utility, it hails from its namesake city in Pennsylvania, serving an estimated 190,000 people across 48 municipalities. Most prominently, York Water represents one of the oldest businesses in America, having been founded in 1816.
With a rich history like that, many folks acquire YORW for its dividend. No, with a forward yield of 1.9%, you’re not going to get rich off it (unless you’re bringing serious funds to the table). However, it features a decently reliable payout ratio of 51%. As well, it commands 19 years of consecutive annual dividend increases.
Financially, York Water benefits from consistent profitability. For example, its trailing-year net margin stands at an impressive 32.6%. Also, its return on equity (ROE) pings at 10.64%, above 63.11% of sector players. Again, it’s not the most exciting opportunity among water utility stocks. However, YORW probably won’t leave you stranded.
American Water (AWK)
A large-scale public utility, American Water (NYSE:AWK) through its subsidiaries provides both water and wastewater services in the U.S. Per its public profile, the company delivers these services to approximately 1,700 communities in 14 states. Ultimately, it serves a population of approximately 14 million through 3.4 million customer connections. However, that footprint didn’t matter much to investors this year, with AWK losing nearly 4% since the January opener.
Some of the red ink isn’t entirely unjustified. For example, its balance sheet could use some work, particularly with its low cash-to-debt ratio of 0.01. Also, the company’s three-year revenue growth rate of 1.5% isn’t too hot. Actually, it ranks worse than 78.4% of other utilities.
Still, AWK, like many other water stocks to buy, comes through in the profitability department. Its net margin rings up the register at 21.62%, above 87.63% of the competition. Finally, analysts peg AWK as a consensus hold. Their average price target is $156, implying 5% upside potential. However, the most optimistic target of $180 assumes over 21% growth.
SJW Group (SJW)
A water utility processing, distribution, wholesale and retail firm, SJW Group (NYSE:SJW) ranks among the top water industry stocks. According to its corporate profile, SJW serves 228,000 connections that serve over one million residents in California. As well, it also has 17,000 connections, serving approximately 60,000 people in Texas. Despite its broad relevance, SJW slipped over 6% since the start of this year.
Similar to other water stocks to buy, SJW Group doesn’t enjoy the most stable balance sheet. Indeed, its Altman Z-Score sits at 1, which mathematically represents distress and a higher risk of bankruptcy. Operationally, though, the company features a three-year revenue growth rate of 11.5%, ranked above 68.28% of its peers. On the bottom line, SJW has been consistently profitable over the past 10 years. In the trailing year, its net margin is a healthy 11.83%.
Right now, analysts peg SJW as a consensus hold. Their average price target is $81.50, implying nearly 6% upside potential. However, six months ago, a Janney Montgomery analyst targeted a $93 price tag, implying nearly 21% growth.
California Water Service (CWT)
Billed as the third-largest investor-owned publicly traded water utility in the U.S., California Water Service (NYSE:CWT) commands a strong presence. Per its corporate profile, California Water serves roughly two million people through its subsidiary companies in its home state, Hawaii, New Mexico, and Washington. True to form, since the Jan. opener, CWT fell more than 8%. Nevertheless, in the trailing year, it’s up over 6%.
Financially, investors will see a familiar theme with many other water stocks to buy. While it’s not completely ugly, California Water’s balance sheet could use some shoring up. In addition, the multiples that CWT prints don’t exactly scream undervalued. On the other hand, investors should appreciate that the company has been consistently profitable over the past decade. Currently, its trailing-year net margin pings at 11.34%, above 62% of sector players. Also, CWT carries a modest forward yield of 1.83% but with 56 years of consecutive dividend increases.
Lastly, analysts peg CWT as a consensus moderate buy. Their average price target lands at $60.50, implying almost 7% upside potential.
A large water technology provider, Xylem (NYSE:XYL) features natural relevancies toward the spheres of public utility, residential, commercial, agricultural, and industrial settings. Its products and services focus on two areas: water infrastructure and applied water. Given its vast relevancies, Xylem could easily make a case for the best water stocks for 2023 for patient investors.
Since the start of this year, XYL fell more than 6%. However, in the past 365 days, it gained over 24% of equity value. Financially, Xylem presents an interesting mixed bag. Unlike other water industry stocks, it features a decent balance sheet. In fact, its Altman Z-Score is 3.98, hitting the safe zone of fiscal stability.
On the other hand, its three-year revenue growth rate sits at 1.7%, an unremarkable figure. On the bottom line, its net margin of 6.43% ranks better than 57.52% of the competition. It’s decent but not breathtakingly awesome. However, analysts want to give XYL a shot, pegging shares a consensus moderate buy. Also, their average price target hits $118, implying nearly 14% upside potential.
Primo Water (PRMW)
An American-Canadian enterprise, Primo Water (NYSE:PRMW) offers multi-gallon bottled water, water dispensers, self-service refill water machines, and water filtration appliances. Primo serves both residential and commercial customers across North America, Europe, and Israel. Since the January opener, PRMW slipped nearly 3%. In the past one-year period, it gained less than 1%.
Still, those interested in possibly undervalued water stocks to buy may want to consider PRMW. Specifically, shares trade hands at 8.93 times operating cash flow. In contrast, the sector median stat is 15.19 times. Also, it’s worth pointing out that Primo’s three-year EBITDA is 9.1%, above 62.22% of its peers.
However, the other metrics aren’t exactly appealing. As with other water stocks, Primo suffers a lowly Altman Z-Score which suggests distress. Also, its net margin of 1.47% is unremarkable, ranking worse than 69.44% of its peers. Nevertheless, analysts peg PRMW as a consensus moderate buy. Their average price target stands at $18.38, implying 22% upside potential.
NuScale Power (SMR)
To be completely upfront, NuScale Power (NYSE:SMR) doesn’t rank among the water utilities stocks. Technically, it wouldn’t classify as belonging to the broader water industry. Nevertheless, the nuclear energy specialist is worth considering because it could change the game for how we view water scarcity.
Long story short, NuScale specializes in small modular reactors (SMRs). Featuring a smaller physical footprint than their traditional counterparts, SMRs can be integrated into previously inaccessible areas. As well, advanced safety protocols should help ease concerns about meltdowns. Effectively, NuScale may command the potential to “decentralize” energy, bringing power production closer to sources of demand.
Fundamentally, NuScale’s business model may help boost the economic viability of desalination; that is, converting ocean water into drinking water. If the company can make this energy-intensive process practical and sustainable, there’s no telling where SMR stock can go. However, it’s high risk so you don’t want to go too nuts here. Still, analysts peg SMR as a consensus moderate buy. Their average price target lands at $11.75, implying over 35% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.