Made famous by correctly producing the housing bubble, which ultimately led to the 2007/2008 financial crisis, Dr. Michael J. Burry has moved toward exclusively purchasing very safe assets, focusing on safe haven sectors such as commodities (namely precious metals) and large chunks of agricultural land with access to water reserves.
Given Mr. Burry’s track record of success in predicting market turmoil, investors have begun to take a deeper look at the potential of asset classes generally considered to be recession-proof, as it appears the smart money has already begun loading up on such asset classes.
The thesis supporting the wide-felt belief that water assets will outperform the broader market is not a unique one; generally speaking, the current utilization rate of all of the earth’s usable water sits around 30% today according to the World Health Organization, with the trend moving very rapidly toward a world in which approximately 30% of the global population (residing in approximately 50 countries) will have water shortages annually, by 2025 no less.
Investing in land with access to fresh water (Mr. Burry’s primary mode of investment), water rights themselves, or in water utilities (treatment plants and the such) are three methods of buying into this thesis. In this article, I’m going to focus on a few publicly traded companies with some of the best water utility assets out there, for investors wishing to “tap” into this trend:
Water Utility Stocks to Buy: American Water Works Company Inc (AWK)
American Water Works Company Inc (NYSE:AWK) is one of the largest names on my list, and it is typically one of the first companies investors considering buying water assets look to for diversification and safety.
With a market capitalization nearing $15 billion, AWK investors have more than doubled their money in the past five years, and nearly quadrupled their money over the last ten years, as investors have clearly chosen AWK as one of the safest places to park some money in a relatively uncertain world.
The company’s water assets are spread over 47 U.S. States, extending into Ontario, Canada as well. The company’s track record of providing water services to over 15 million people for more than 130 years speaks for itself, with the vast majority of analysts generally considering this company a proxy for the overall water market in North America. For investors looking for the safest place to invest in this sector, AWK is a good place to start.
Water Utility Stocks to Buy: Aqua America Inc. (WTR)
Aqua America Inc (NYSE:WTR) is a growth investor’s dream, providing a continuously expanding base of quality water assets supported by a management team with an aggressive acquisition-focused approach to increasing long-term value for shareholders.
Given the long-term nature of water assets as regulated utilities with long-term contracts allowing water utilities companies to earn very stable profits over long periods of time, buying assets at nearly any price and churning out profit margins of near 30% (that’s right, it’s not a typo), levering up and continuing to buy high-quality assets should indeed be what management focuses on, as long as the company is able to raise debt at less than 28%.
WTR recently completed three acquisitions within the most recent quarter, adding on more than 1,000 customers to its impressive base. While these acquisitions are generally considered immaterial to the overall base of assets (acquisitions totaled $5.8 million, while total assets stood at $6.4 billion), the focus of WTR’s management team in looking for opportunities wherever they may lie (big or small) is one of the reasons growth-oriented investors seeking water exposure should take a look at WTR.
Water Utility Stocks to Buy: Algonquin Power & Utilities Corp. (AQN)
Perhaps my favorite utilities play of the three is Algonquin Power & Utilities Corp. (NYSE:AQN). AQN’s diversification across different utilities sectors — the vast majority of the company’s assets are in fact in electricity generation — has led to a number of strategic investments in the water utility space that make this company a great pick for investors looking for a stable, well-diversified play in this sector.
Perhaps the most prominent water assets held by AQN are those operated by Liberty Utilities Group, a wholly owned subsidiary of Algonquin. Liberty’s water distribution and wastewater collection utility systems are spread across six states, providing clean water to 158,000 customers.
On Aug. 10, AQN announced its board had given its approval for Liberty to move forward with the acquisition of two water distribution systems in the city of Perris, California. These water distribution assets will be purchased for $11.5 million and are expected to close in Q4, pending a public vote on the matter in early November. This acquisition will add to the company’s diversification efforts in the water utility space, as California remains one of the areas Algonquin has maintained interest in growing.
The company’s most recent earnings highlighted the strength of some of the company’s recently acquired water assets. Revenue increased by 103% year-over-year in Q2 2017, with Adjusted EBITDA, Adjusted Net Earnings, earnings-per-share and dividend-per-share increasing by 99%, 72%, 18% and 17%, respectively.
As of this writing, Chris MacDonald did not hold a position in any of the aforementioned securities.