Water stocks have long been underrated in the investment world since the basic necessity of life is most often taken for granted. We certainly cannot imagine a world without technology, but can we even survive in a world without fresh water? In the wake of drought conditions in California and other states last year, people can no longer be oblivious of the situation.
Demand for fresh water – which accounts for a meager 2.5% of the world’s total water content – is growing along with urbanization and ever-increasing global population. Today, a major part of water infrastructure in the United States is approaching the end of its useful life.
Are we nearing a time when we have to stop drinking water directly from the tap? Per the Natural Resource Defense Council, cities like Atlanta, Albuquerque, San Francisco, and Fresno have “fair-to-substandard” drinking water. If a city has substandard water quality, then tap water may be carrying a good number of contaminants. Consumers have started to question the quality of the water they drink.
Upgrade and Replace – Need of the Hour
In recent times, drinking and waste water infrastructure in the U.S. has been under the spotlight. The talking point right now is whether the amount of infrastructure investment planned by the U.S. government is equal to the sum required for replacing the aged and outmoded water infrastructure.
The U.S. Environmental Protection Agency (EPA) last conducted its Drinking Water Infrastructure Needs Survey and Assessmentback in 2011. The report outlined that an investment of around $384 billion will be required over the next 20 years to modernize and upgrade U.S. water and waste water systems. On the other hand, a careful analysis by the American Water Works Association (AWWA) showed that about $1 trillion will be needed over the next 25 years only to restore underground pipes.
Consolidation Holds the Key
The water utility space is highly fragmented, as there are a number of water utilities in the U.S. operating on various scales ranging from thousands of customers to millions. The disjointed water industry has raised concerns about whether the smaller systems are sustainable in terms of competence and adaptability.
A plausible solution is the consolidation and integration of local and regional systems into large-scale structures. This would free up access to the capital markets for infrastructure development in order to provide reliable water services. This also explains the frequent acquisitions taking place in this space right now.
Top Players in the Water Industry
Artesian Resources Corp. ARTNA is the parent company of Artesian Water Company, which provides water utility services to customers in northern Delaware. It seeks to provide the best water and best customer service, and Artesian’s water business accounts for nearly 90% of its revenues; Artesian is the eighth largest investor-owned water utility in the U.S. by total capitalization. ARTNA is a #2 (Buy) on the Zacks Rank.
A pioneer in providing Water-as-a-Service (WAAS), AquaVenture Holdings WAAS offers clean drinking and processed water. The company’s operating platform consists of Quench, a provider of Point-of-Use, filtered water systems and related services to institutional and commercial customers. Based in Tampa, Florida, AquaVenture, serves over 40,000 customers, and delivers seven billion gallons of clean water each year. WAAS is a #3 (Hold) on the Zacks Rank.
Another top performing water company is American States Water Company AWR. The company provides water services in 75 cities in California. The company is primarily focused on long-term military contracts. American States Water’s unit, Golden State Water Company, recently won the California Public Utilities Commission’s (CPUC) approval to acquire all operating assets of Rural Water Company. AWR is a #3 (Hold) on the Zacks Rank.
Pure Cycle Corp. PCYO provides water and wastewater services including water production, storage, treatment, distribution, wastewater collection and treatment, irrigation water treatment and distribution, and many other water-related services. Based in Denver, Pure Cycle is committed to thinking outside the box when it comes to designing and operating an environmentally friendly water and wastewater system. PCYO is a #2 (Buy) on the Zacks Rank.
Share prices of each stock have increased significantly over the past year. ARTNA, AWR, and PCYO gained 42.31%, 6.79%, and 49.78%, respectively, while WAAS has lost about 16% during the same time frame. These water companies also have an impressive earnings track record, are reliable dividend players, and are known for consistently sharing their profits with shareholders.
Though the water industry has long been affected by low rates and geographical and functional fragmentation, the pressing need of the hour is to replace hundreds of years of old pipelines and pumps. Now that most are in agreement that water is an essential element to all living things, the big question in the country is how to modernize dated infrastructure.
In terms of investment opportunities, there is speculation that water will be the next oil. Moreover, recent droughts have definitely made us realize that water isn’t as abundant as we think. So, why not add some cool water stocks to your portfolio to quench that investment thirst.
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Artesian Resources Corporation (ARTNA): Free Stock Analysis Report
American States Water Company (AWR): Free Stock Analysis Report
AquaVenture Holdings Ltd. (WAAS): Free Stock Analysis Report
Pure Cycle Corporation (PCYO): Free Stock Analysis Report
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