Water Investments: Where To Start And Focus

Water is an essential resource, but it is also a scarce one. With climate change, pollution, and increasing demand, water is becoming increasingly scarce. This makes water a valuable commodity with financial value for investors. There are several ways to invest in water, either directly or indirectly. Direct investment can be done by purchasing water rights or water futures. Indirect investment can be done by investing in water-related stocks or funds. Water-related stocks can include companies that rely heavily on the water market, such as beverage providers, utilities, water treatment/purification firms, and equipment makers. Water funds can include index funds and ETFs that track the performance of a water index. When investing in water, it is important to consider the company's growth history, financial condition, market position, and management strength.

Water scarcity

The World Bank estimates that up to $7 trillion needs to be invested in global water infrastructure by 2030 to meet sustainable development goals. This includes investment in water infrastructure, such as groundwater wells, reservoirs, storage tanks, dams and pipelines, as well as water treatment and purification systems.

The issue of water scarcity has created investment opportunities in the water sector. These include:

• Water-related funds, such as index exchange-traded funds (ETFs) and mutual funds
• Water companies, particularly those with pricing power that can pass on increased costs to consumers
• Water testing and metering, including advanced metering systems to avoid water leakages and waste
• Water treatment and purification, including desalination plants to treat seawater and make it drinkable
• Water infrastructure, including pipelines, reservoirs and dams

Water treatment

Water is an essential resource, and its scarcity in certain regions is creating shortages that could become a significant problem in the coming decades. This makes water treatment a crucial aspect of the water industry.

• Pentair (PNR): Pentair is a water treatment provider that offers water and flow control devices and provides residential, commercial, and industrial water solutions.
• American Water Works Co. Inc. (AWK): American Water Works is the largest listed water and wastewater utility in the U.S., serving residences, public buildings, and commercial and industrial businesses. They also have long-term military contracts that provide stability.
• Consolidated Water Co. Ltd. (CWCO): Consolidated Water is a seawater desalination company that supplies drinking water in the Cayman Islands, the Bahamas, and the British Virgin Islands. They have long-term contracts with government utilities in these regions.
• Global Water Resources Inc. (GWRS): Global Water Resources owns and operates systems that provide water, wastewater, and recycled water services to utilities in communities around metropolitan Phoenix and Tucson, Arizona.

By investing in water treatment companies, you can contribute to addressing the global issue of water scarcity while also diversifying your investment portfolio.

Water purification

• Danaher (DHR): Danaher produces professional, medical, industrial, and commercial products. Their water quality business includes advanced purification technology and precision instrumentation used to treat, manage, and analyze water supplies. Bank of America analyst Derik de Bruin has a "buy" rating on the stock, anticipating mid-single-digit revenue growth in 2023.
• Ecolab (ECL): Ecolab provides water, hygiene, and energy technologies and services to a diverse range of customers, including the food service, healthcare, hospitality, industrial, and energy markets. Morningstar analyst Seth Goldstein rates Ecolab as "buy", highlighting its pricing leverage and potential to regain pre-pandemic profit margins.
• Pentair (PNR): Pentair offers water and flow control devices and provides residential, commercial, and industrial water solutions. Morningstar analyst Krzysztof Smalec rates Pentair as a "buy", noting that its aquatic systems business is the fastest-growing and most profitable segment.
• Invesco Water Resources ETF (PHO): This ETF focuses on companies that create products for water conservation and purification. It has a US-centric basket of 38 holdings, including mid- and smaller-cap companies. The ETF has an expense ratio of 0.6%.
• IShares MSCI Water Management Multisector ETF (IWTR): This ETF invests in companies that derive a portion of their sales from sustainable water products or demonstrate efficient water management. It has an expense ratio of 0.47%.

Water Utilities:

• American Water Works Co. Inc. (AWK): As the largest listed water and wastewater utility in the US, American Water Works serves residences, public buildings, and commercial and industrial businesses. It also has long-term military contracts. CFRA Research analyst Daniel Rich anticipates the company's earnings and dividend payouts to outperform its peers through 2025.
• Consolidated Water Co. Ltd. (CWCO): Consolidated Water is a seawater desalination company, supplying drinking water to two of the three most populated areas on Grand Cayman Island. They have long-term contracts in the Cayman Islands, the Bahamas, and the British Virgin Islands, providing exposure to the Caribbean's tourism industry.
• Global Water Resources Inc. (GWRS): This pure-play water resource management company owns and operates systems that provide water, wastewater, and recycled water services to utilities in communities around metropolitan Phoenix and Tucson, Arizona, areas with significant population growth.

Water Treatment and Infrastructure:

• Roper Technologies Inc. (ROP): Roper Technologies develops software for a wide range of applications and is the parent company of Neptune Technology Group. Neptune partners with water utilities to provide innovative data and software solutions. Morningstar analyst Joshua Aguilar has a "buy" rating on Roper, highlighting their organic revenue growth and margin expansion.
• Tetra Tech Inc. (TTEK): Tetra Tech is a global provider of consulting, program management, engineering, construction management, and technical services. Their One Water solutions address complex water issues, including climate change impacts, contamination, and population pressures. CFRA analyst Jonathan Sakraida rates Tetra Tech as a "buy", noting their position in high-growth markets related to water infrastructure and climate resilience.
• Valmont Industries Inc. (VMI): Valmont Industries manufactures center-pivot irrigation systems (sprinklers) for watering crops and provides technology to help farmers make more efficient decisions. They also produce telecom towers, energy grid infrastructure, and light poles.

Water Transportation and Distribution:

• Neptune Technology Group (part of Roper Technologies): Neptune partners with water utilities to provide data and software solutions, helping them manage their operations more efficiently.
• York Water Company (YORW): The York Water Company operates within its franchised territory, covering 48 municipalities in York and Adam Counties in Pennsylvania. They are regulated by the Pennsylvania Public Utility Commission in various areas, including billing, payment procedures, and rate setting. Zacks Equity Research rates York Water as a "#3 (Hold) on the Zacks Rank".
• California Water Service Group (CWT): California Water Service Group serves about 477,900 customers in 83 California cities. They have filed a rate increase appeal to reimburse planned expenditures on water supply sources, pipes, pumps, treatment plants, and other facilities to ensure safe and reliable water services. Zacks Equity Research rates them as "#3 (Hold) on the Zacks Rank".

Water rights

However, there are other ways to invest in water. Water is a valuable commodity with investment value for investors who want to diversify their portfolios by acquiring water-related assets and investments.

One way to invest in water is through water-related stocks. These include beverage providers, utilities, water treatment and purification firms, and equipment makers, such as those that provide pumps, valves, and desalination units.

Another way to invest in water is through exchange-traded funds (ETFs) and mutual funds related to the water sector. These funds invest in companies that create products that conserve and purify water for homes, businesses and industries.

When it comes to bottled water, the market is growing internationally. Demand is rising from China to Mexico, and the average American drinks approximately 45 gallons of bottled water a year.

Finally, investors can buy water futures on the exchange. For example, the Chicago Mercantile Exchange has tradeable water futures that are tied to water prices in California. These futures contracts allow investors to bet on the future value of water.

Water infrastructure

According to the American Society of Civil Engineers, a water main breaks every two minutes, resulting in an estimated loss of 6 billion gallons of treated water daily. This is a serious issue, especially considering the increasing water scarcity worldwide.

In the United States, water companies are fragmented, with around 50,000 water districts owned by small enterprises, families, communities, or counties. These smaller entities often struggle to manage their communities' needs due to aging infrastructure, increased regulations, and the impacts of climate change. They lack access to the capital available to larger entities, creating investment opportunities in the water infrastructure sector.

The World Bank estimates that up to $7 trillion needs to be invested in global water infrastructure by 2030 to meet sustainable development goals. Similarly, the Environmental Protection Agency in the United States estimates that the country will need to invest $625 billion over two decades in drinking water infrastructure.

The demand for advanced metering systems that combine technology and water metering is also increasing. The smart water metering market is expected to reach $9.6 billion by 2024, up from $5.9 billion in 2019.

Some examples of water-related ETFs include:

• Invesco Water Resources ETF (PHO)
• First Trust Water ETF (FIW)
• Invesco S&P Global Water ETF (CGW)
• Global X Clean Water ETF (AQWA)

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