3 Water Utility Stocks You Should Buy to Ride Earth's Greatest Megatrend
- By Lovisa Alvin
If you are familiar with the film "The Big Short," then you know who Dr. Michael J. Burry is. Well, just in case you don't know to whom we are referring, he is the fund manager who foresaw the housing bubble in 2007-2008.
It's the same bubble that caused the 2009 financial crisis. Burry was one of the first investors who started shorting the mortgage industry. He made a fortune when the dust settled.
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So what is Burry up to now? He is slowly loading in water-related industries.
According to Burry, the demand for fresh water will skyrocket in the future. Burry's thesis offers great points. Furthermore, investing in water utilities is a relatively safe position. It's one of those rare occasions wherein when you lose, you lose small; but if you win, you win big. In other words, it's a low-risk, high-reward investment.
Here are the top three stocks that you should look into:
American Water Works Company
If you are serious about loading a few water utility companies as a means of portfolio protection and diversification, the American Water Works Company should be the first on your list.
American Water Works has a total capitalization of almost $15 billion. In fact, if you invested in American Water Works in the last five years, then you could have doubled your money. If you invested in the same company in the last 10 years, then you could have nearly quadrupled your investment.
With 130 years under its belt and assets spread over 47 states, American Water Works is a stock you can't ignore.
Aqua America
Aqua America (WTR) is a great stock if you are not so concerned about downside protection. It's a unique stock in a way - it's still a utility, but it's also growing rapidly. The company's success can be attributed to its aggressive acquisition and a strong and experienced management team.
Aqua America is clocking profit margins that are nearing 30%. Also, Aqua America just made three acquisitions within the recent quarter that added more than 1,000 customers to its already sizable and rapidly growing customer base. While the recent acquisitions only added around $5.8 million to the company's total assets of $6.4 billion, they greatly show how the management team is aggressively turning every rock to find opportunities, large or small.
Algonquin Power and Utilities
Algonquin Power and Utilities Corp. (AQN) is a utility company that is a great match for investors who are looking for even more protection. This is because Algonquin Power and Utilities is not just a water company, but it's an electric company, too. As an investor, this means that you will have double layers of diversification protection.
You might be concerned that the increased protection may lower the stock's value growth. Well, for the second quarter, Algonquin Power and Utilities' revenue increased by 103% year over year. The adjusted EBITDA increased by 99%. The adjusted net earnings increased by 72%. The earnings per share increased by 18%. Last, the dividend per share increased by 17%. These are impressive numbers even for growth-oriented investors.
It seems like Burry is going to be right again with this one. After all, if he's wrong, how wrong can you get with water utility companies? It's not like humans would suddenly stop needing water to survive. But if you are right, then this could be the biggest investment you could make in your lifetime.
Disclosure: I do not own any shares of any stocks mentioned in this article.
This article first appeared on GuruFocus.
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