While precious resource investments tend to coalesce around gold and silver, the real assets to focus on are water stocks. The aforementioned metals are critical to advanced industries, no doubt about it. But we cannot live without water.
Indeed, rising concerns exist that the conflicts of tomorrow will center on water rights and access. Given the life-or-death nature of such access, any conflicts that do materialize can quickly get out of hand. I mention this harsh backdrop to underscore the importance of proper resource stewardship.
Though we may not run out of water itself, the drinkable variety is increasingly in short supply. With that, these water stocks should add a relevance boost to your portfolio.
Xylem (XYL)
A water technology provider, Xylem (NYSE:XYL) features two core business areas: water infrastructure and applied water. The former category mainly focuses on water delivery and wastewater transport and treatment, while the latter targets residential and commercial building services along with industrial and agricultural applications. Since the start of the year, XYL stock gained about 12%.
Currently, analysts rate shares a consensus moderate buy with a $133.64 average price target. That implies only a little over 5% return. However, the most optimistic target calls for $150, which projects growth of 18% over the next 12 months.
Looking ahead, the experts project Xylem’s revenue to reach $8.49 billion at the end of this fiscal year. If so, that would represent a 15.4% lift from 2023 sales of $7.36 billion. Further, 2025 sales should land at $8.96 billion.
To be sure, XYL stock is hardly a discount with a forward earnings multiple of nearly 31X. However, it’s consistently profitable, benefiting from solid margins across the board. Therefore, it’s one of the water stocks to put on your watch list.
Essential Utilities (WTRG)
As the name suggests, Essential Utilities (NYSE:WTRG) is a utility firm specializing in water and wastewater treatment infrastructure and services. Since the beginning of January, WTRG stock lost slightly more than 8%. The red ink appears a bit ungenerous, given that the company recently came out with quarterly earnings of 50 cents per share. This figure beat the consensus view of 49 cents per share.
Indeed, the figure also compared favorably to earnings of 44 cents per share in the year-ago period. Nevertheless, analysts at UBS and Wells Fargo are holding firm with reiterated “buy” ratings. Their price targets stand at $42 and $40, respectively. At the highest, WTRG stock could facilitate a return of nearly 21%.
That seems reasonable based on the financials. Looking ahead, the experts believe Essential’s revenue will reach $2.38 billion at the end of this fiscal year. If so, we’re talking a 16% growth rate from 2023. Also, in 2025, the company may print sales of $2.54 billion.
As with Xylem, Essential runs a hot multiple compared to other utilities. However, it’s consistently profitable, making it a worthwhile idea for water stocks.
Veolia (VEOEF)
A French translational company, Veolia (OTCMKTS:VEOEF) is administratively different from the other water stocks on this list. Since it’s not listed in a U.S. exchange, it’s traded over the counter via broker-dealer networks. As a result, not all brokerages may provide access to VEOEF stock. Still, if you can get your hands on it, it may be worthwhile to do so.
A multi-tiered business, Veolia specializes in water management, waste management and energy services. However, I’ve been focused on the company’s desalination directive or the process of converting salt water into potable (drinkable) water. With freshwater becoming less abundant, desalination could be a hotly demanded industry in the years ahead.
In addition, other innovations – such as small modular (nuclear) reactors – could make desalination more economically viable. If so, you’re going to want to keep your eyes on VEOEF stock.
Notably, analysts rate shares a unanimous strong buy (among seven expert voices). Further, the average price target hits $38.88, implying almost 26% upside potential.
On the date of publication, Josh Enomoto did not hold (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.
