7 Water Stocks to Buy Now: May 2024

  • The need to update an aging infrastructure is a good reason to look for water stocks to buy.  
  • American Water Works (AWK): Investors are looking beyond ongoing lawsuits to find the value in AWK stock.  
  • York Water (YORW): This reliable water utility isn’t a high flier, but delivers unmatched consistency.  
  • Core & Main (CNM): The picks-and-shovels company capped off a strong year and more growth is likely.  
  • Continue reading for more water stocks to buy!
water stocks to buy - 7 Water Stocks to Buy Now: May 2024

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Articles about water stocks to buy typically focus on income-oriented investors. That’s because, like many utility stocks, water stocks are known for their predictability. But if you’re looking for growth, predictable doesn’t cut it.  

However, for the next several years, water may be a key sector for investors who are looking for growth. It comes to an undeniable fact. That is, the nation’s water infrastructure is in massive need of repair.  

According to a study by the FMI Corporation, 78% of companies in the private sector cite aging infrastructure as the water industry’s biggest challenge. This comes at a time when that infrastructure, in many areas, is coming under the strain of population migration. This is increasing the need for water and wastewater treatment facilities. Yet, our nation’s existing publicly owned water treatment plants are either approaching the end of their useful lives or operating at near or above capacity.  

However, approximately $57 billion is flowing into the sector from the Infrastructure Investment and Jobs Act (IIJA). That, however, is just a drop in the bucket compared to what the sector will need over the next 10 years.  

That’s where the opportunity lies for opportunistic investors. Here are seven water stocks to buy while this trend is in its early stages.  

American Water Works (AWK)

A photo of a woman holding a glass of water.
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American Water Works (NYSE:AWK) is the type of company many investors think of when looking for water stocks to buy. It’s one of the world’s largest water utilities serving over 14 million customers across 14 states. This provides a consistent base for revenue and earnings, and both have been growing year-over-year (YOY) for several quarters.  

But in the last 12 months, AWK stock is down 10%, and it’s down 31% from its all-time high of $188.86 that it hit in 2021. One reason for the pullback may come from the company being named as a party in the ongoing Multi-District Litigation (MDL) regarding forever chemicals.  

However, since the company’s last earnings report in May, the stock is showing signs of turning around. At 24.8x forward earnings, investors are paying only a slight premium to the sector average of approximately 22.8x. Plus, investors get access to the company’s dividend which is growing at an attractive average rate of over 8% in the last three years.  

York Water (YORW) 

Flooded quarry for limestone mining. Turquoise water. White beaches. Water stocks.
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York Water (NYSE:YORW) is another steady water stock for investors to consider. The company is not only the nation’s oldest investor-owned utility, It’s one of the country’s oldest companies period.  

York services over 210,000 customers in the state of Pennsylvania, which is a state that’s shown strong population growth in the past 15 years. However, that’s a narrow focus which makes it particularly reliant on regulatory approvals for rate increases.  

That narrow service area is also reflected in the company’s market cap of around $524 million. This is not a growth stock. In fact, over the past five years, YORW stock has barely budged. The stock is not heavily covered by analysts, but the one analyst who has issued an opinion gives the stock a Strong Buy rating with a $47 price target that gives investors the potential for 28% upside.  

However, like many utility stocks, investors buy York Water for its reliable, growing dividend. The dividend aristocrat has now issued a dividend for 613 consecutive quarters. That’s an impressive testament to the company’s balance sheet,  

Core & Main (CNM) 

the interior of a water utility processing plant
Source: Shutterstock

With infrastructure spending increasing in the water sector, you’ll want to take a close look at Core & Main (NYSE:CNM). The company provides the products and services that water utilities and wastewater treatment plants need to replace or repair their infrastructure.  

In fiscal year 2023, Core & Main achieved several key milestones including record net sales of over $6.7 billion, record operating cash flow of approximately $1.1 billion. The company also demonstrated an ability to maintain its prices and margins even as supply chains normalized.  

Those strong numbers are reflected in the CNM stock price which is up 122% in the last 12 months. But is all the growth priced in? Analysts suggest that the stock may be close to its consensus price target. However, the stock trades at a not-too-expensive forward P/E of around 23x. And five out of 11 analysts give the stock a Strong Buy rating which means investors may view a significant pullback as a buying opportunity.  

Pentair (PNR) 

A zoomed in photo of a drop of water hitting a container of water's surface.
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When you’re considering water stocks to buy, Pentair (NYSE:PNR) fills an important niche. Specifically, the company manufactures residential and commercial pool equipment as well as water filtration solutions for both residential and commercial applications.    

Unlike some of the other stocks on this list, Pentair isn’t generating strong YOY growth. They are, however, delivering consistent results and investors seem to like it. The stock is up more than 41% in the last 12 months. And analysts give the stock a consensus price target of $91.67 which gives investors an upside of more than 11%.  

Because the company has exposure to the residential market (i.e. pools) it could be impacted if consumers decide to hold off on putting in that pool. However, that’s a concern for traders. If you’re willing to take a long position in PNR stock, it looks like a good decision, particularly trading at 19.6x forward earnings.  

Mueller Water Products (MWA) 

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Mueller Water Products (NYSE:MWA) is another play on the need to improve the nation’s water infrastructure. And as Josh Enomoto points out, this is something that Congress can actually agree on. That’s no small feat particularly in an election year.

A typical election year puts investors on high alert as they try not to zig where the market is zagging. That’s not the case with MWA stock. 

And why would they want to stay away? Mueller delivered its second quarter earnings report in early May and delivered strong year-over-year growth by any meaningful measure. The company also raised its guidance for the full year which suggests that there could be more upside to come. And why would they want to stay away? Mueller delivered its second quarter earnings report in early May and delivered strong year-over-year growth by any meaningful measure. The company also raised its guidance for the full year which suggests that there could be more upside to come.  

MWA stock is up 36% in the last 12 months with much of that gain coming in 2024. Analysts still believe there’s more upside for the stock and three out of six analysts have a Strong Buy rating on the stock.  

Xylem (XYL) 

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Xylem (NYSE:XYL) is an engineering company that develops products and solutions to combat the world’s most significant water challenges. The company’s revenue is balanced between four business units that address the full lifecycle of the water sector. 

That revenue is growing which is showing up in Xylem’s earnings reports, which have been beating analysts’ expectations on the top and bottom lines while also showing solid year-over-year growth. In its most recent earnings report in May, the company raised its full-year guidance for revenue and earnings. That growth is reflected in the XYL stock price which is up 38% in the last 12 months and 26% in 2024.  

If you’re looking for an undervalued stock, there are other options than Xylem which is trading at over 34x earnings as of May 23, 2024. Nevertheless, 11 out of 20 analysts have a Strong Buy rating on XYL stock despite it being within 3% of its consensus price target. Adding Xylem to your watch list could reward you if there’s a significant pullback.  

Invesco Water Resources ETF (PHO) 

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Last on this list of water stocks to buy is the Invesco Water Resources ETF (NYSEARCA:PHO). One thing that should be clear by now is that the water sector can be regional and specialized. Therefore, you would have to own multiple stocks to cover the entire sector. Or you can buy shares in an ETF like the PHO ETF which correlates with the price yield of the NASDAQ OMX US Water Index.  

The ETF doesn’t have a long track record. It’s only been trading publicly since late December 2020. However, in the past twelve months, PHO stock is up 27.5%. That’s not a bad return, but you could do better investing in some of the individual components of the fund, many of which are listed above. Still, it’s what you’re expecting to get from an ETF in that you’re getting the aggregate performance for the sector.  

On the date of publication, Chris Markoch 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. 

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.


Article printed from InvestorPlace Media, https://investorplace.com/2024/05/7-water-stocks-to-buy-on-infrastructure-growth/.

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