For investors that want to maximize their probabilities of long-term success, water industry stocks could be a no-brainer. Fundamentally, the bullish narrative centers on permanent relevance. Water represents our most precious commodity because it’s essential and irreplaceable. As well, there is no alternative to drinking water.
Exacerbating the circumstance surrounding this liquid asset – and thus cynically accelerating the case for water industry stocks – is the limited supply and increasing scarcity equation. As myriad thinktanks have pointed out, the global population continues to rise. And that necessarily means more consumption of critical resources.
Finally, because of the indelibly relevant nature of the underlying resource, water industry stocks generally benefit from stable and predictable revenue streams. It’s not as if people and institutions can just shut off water-related services and get away with it.
On that note, below are compelling water industry stocks to buy.
IDEX (IEX)
A specialist in the development, design, and manufacture of fluidics systems and other critical equipment categories, IDEX (NYSE:IEX) plays a background role in the water ecosystem. That’s not to say it’s not important – far from it. According to its website, IDEX produces pumps, valves, flow meters, and injectors to keep the water and wastewater industry moving. It also serves myriad other sectors, thus imbuing the enterprise with a diverse portfolio.
However, the market doesn’t quite appreciate the narrative of IDEX. I’d say that it’s their loss. While the business isn’t exactly traded at a discount, it commands strong profitability metrics. Unsurprisingly, its margins across the board (gross, operating, net) stand among the leaders in the category. Also, it sports a return on equity (ROE) of 19.62%, beating out 87.46% of its peers. So, for the money, you’re getting a stacked enterprise.
While it’s not much, Idex carries a forward dividend yield of 1.21%. Analysts also rate shares a moderate buy with a $222.33 average price target. The high-side target lands at $242, implying over 14% upside potential.
Veolia (VEOEF)
You might get a warning when attempting to acquire Veolia (OTCMKTS:VEOEF) because it’s traded over the counter. However, this is not some junk security that could collapse at any moment. Rather, this French transnational company represents a global leader in water, waste and energy management solutions. It offers a wide range of services, including water/wastewater treatment, industrial water management and waste recycling.
Obviously, all these business units command significant relevance. However, what I’m really interested in is the company’s desalination specialty. Basically, this process involves removing salt from seawater and converting it into potable (drinking) water. Presently, the desalination process is energy intensive due to the reverse osmosis or distillation technologies involved. However, advancements in other fields – perhaps small modular reactors – could make desalination viable.
Interestingly, over the past one-year period, VEOEF gained nearly 8% of equity value. That stands in sharp contrast to Idex. Also, despite trading over the counter, Veolia enjoys a unanimous strong buy rating with an average price target of $38.18. Thus, it’s one of the top water industry stocks to consider.
Essential Utilities (WTRG)
A utility company, Essential Utilities (NYSE:WTRG) provides drinking water and wastewater treatment infrastructure and services. Per its public profile, the company features stakes in Illinois, Indiana, New Jersey, North Carolina, Ohio, Pennsylvania, Texas, and Virginia. One of the reasons why utilities generally attract attention is the natural monopoly. Basically, the barriers to entry are too high for would-be competitors.
Still, that’s of little comfort to WTRG stakeholders. In the past 52 weeks, shares gave up more than 25% of equity value, an un-utility-like performance. However, it’s also possible that WTRG may have hit a bottom. A look at the security’s point-and-figure (P&F) chart reveals that it printed a low pole reversal formation. This could signal a resurgence of bullish interest.
Sure enough, while it has some spotty financial stats, Essential prints strong revenue and consistent profitability. And to reward shareholders, the company offers a forward yield of 3.43%. Finally, analysts rate shares a unanimous strong buy as well with a $45 average price target. That implies over 25% growth potential, making it one of the water industry stocks to consider.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
