Water is one of the most essential resources in the world. Unfortunately, it is increasingly scarce in certain regions, creating shortages that could become a big problem in the coming decades.
The global population just hit 8 billion, yet the total amount of fresh water on the planet has remained constant. Droughts in California and other parts of the American West have made the region the driest it has been in at least 1,200 years.
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For investors, the silver lining to water shortages is that a growing number of companies are working to use technology and innovation to combat the water crisis. As water shortages become more of an issue, analysts say some of these companies could make excellent long-term investments. Here are seven water-related stocks investors should watch:
— American Water Works Co. Inc. (ticker: AWK)
— Roper Technologies Inc. (ROP)
— Danaher Corp. (DHR)
— Ecolab Inc. (ECL)
— Tetra Tech Inc. (TTEK)
— Ferguson PLC (FERG)
— Pentair PLC (PNR)
American Water Works Co. Inc. (AWK)
American Water Works is a water utility that provides water and wastewater services to industrial, residential and commercial customers. CFRA Research analyst Daniel Rich says U.S. federal water infrastructure spending will be a bullish catalyst for American Water Works, and he anticipates the company’s earnings and dividend payouts will outgrow its peers through 2025. Rich projects that American Water Works revenue growth will rebound from a 4% decline in 2022 to at least 7% growth in 2023, driven by both rate increases and customer acquisitions. CFRA has a “hold” rating and $152 price target for AWK stock, which closed at $149.75 on Nov. 28.
Roper Technologies Inc. (ROP)
Roper Technologies develops software used for a wide variety of business applications. It is also the parent company of Neptune Technology Group, which partners with water utilities to provide innovative data and software solutions. Morningstar analyst Joshua Aguilar says Roper’s 10% organic revenue growth, 17% earnings growth and significant margin expansion in the third quarter are all encouraging trends. Roper says the company’s 15% organic revenue growth in technology-enabled products was particularly impressive. Aguilar is especially bullish on Roper’s Neptune water meter business. Morningstar has a “buy” rating and $530 fair value estimate for ROP stock, which closed at $424.03 on Nov. 28.
Danaher Corp. (DHR)
Danaher produces professional, medical, industrial and commercial products. The company’s water quality business includes precision instrumentation and advanced purification technology used to analyze, treat and manage water supplies. Bank of America analyst Derik de Bruin says the fundamentals of the bioprocessing market remain strong, and Danaher is well positioned to deliver at least mid-single-digit revenue growth in its core business in 2023. He says the company’s spinoff of its industrial Fortive business and the sale of its dental business have improved Danaher’s growth and margin profiles. Bank of America has a “buy” rating and $335 price target for DHR stock, which closed at $261.16 on Nov. 28.
Ecolab Inc. (ECL)
Ecolab provides water, hygiene and energy technologies and services for a wide range of customers, including the food service and processing, health care, hospitality, industrial and energy markets. Morningstar analyst Seth Goldstein says Ecolab’s stock is “materially undervalued” after the company’s profit growth rebounded in the third quarter. Goldstein says the company can take advantage of its pricing leverage to fully return to pre-pandemic profit margins. He says Ecolab is the global leader in cleaning and sanitation and will continue to gain market share and expand into new markets. Morningstar has a “buy” rating and $210 fair value estimate for ECL stock, which closed at $145.48 on Nov. 28.
Tetra Tech Inc. (TTEK)
Tetra Tech is a global consulting, program management, engineering, construction management and technical services provider. The company’s One Water solutions specifically address complex water issues, such as climate change impacts, contamination and population pressures. CFRA analyst Jonathan Sakraida says global sustainable infrastructure and environmental services demand will remain high. Sakraida says Tetra Tech is well positioned in several high-growth markets, including water infrastructure, climate resilience, and hydro and wind power. Tetra Tech shares are down just 10.2% this year through Nov. 28, making it the best performer on this list. CFRA has a “buy” rating and $185 price target for TTEK stock, which closed at $152.55 on Nov. 28.
Ferguson PLC (FERG)
Ferguson provides plumbing supplies, heating and air conditioning products, as well as other building supplies to homeowners and professional contractors. Its Ferguson Waterworks division specifically focuses on water, sanitary sewer and stormwater management. Bank of America analyst Arnaud Lehmann says a downturn in the U.S. housing market in 2022 is a near-term concern, but Ferguson’s long track record of market share gains and margin improvements makes him bullish on the stock in coming years. Lehmann says Ferguson has a solid business model and a competitive market position. Bank of America has a “buy” rating and $140 price target for FERG stock, which closed at $116.96 on Nov. 28.
Pentair PLC (PNR)
Pentair produces water and flow control devices and provides residential and commercial water solutions and industrial water management services. Pentair shares are down 39% so far in 2022, making it the worst-performing water stock on this list. However, the stock’s underperformance has also pushed its dividend yield up to 1.8%, which is the highest among the stocks mentioned. Morningstar analyst Krzysztof Smalec says pool sales have softened, but Pentair’s aquatic systems business remains its fastest-growing and most-profitable segment. Morningstar has a “buy” rating and $60 fair value estimate for PNR stock, which closed at $44.53 on Nov. 28.
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7 Ways to Invest in Water originally appeared on usnews.com
Update 11/29/22: This story was previously published at an earlier date and has been updated with new information.
