Those in the art community are fond of saying “pink is the new black”, meaning trends change over time with the old inevitably giving way to something newer, fresher and more on-trend. Investors might soon find their peers stating “water is the new oil”, meaning fresh and potable water is widely coveted, in short supply and quickly gaining value – similar to how oil was viewed up until recent years.
It is quite possible the wars of the future will be fought over water rather than oil. The silver lining to our planet’s decreasing supply of water, temperature spike and rapid population growth is the fact that we can make money from this phenomenon by investing in water stocks.
American Water Works (AWK), American States Water (AWR) and California Water Service Group (CWT) are three water stocks worth watching as H2O becomes the new liquid gold.
American Water Works (AWK)
Water is the foundation of life, meaning it belongs in every investor’s portfolio, especially as the planet warms and the population continues to skyrocket. If you are on the prowl for a water provider, look no further than AWK. This company provides water and wastewater services for businesses throughout North America.
AWK is the largest water and wastewater industry player in terms of yearly revenue and market cap. All but three states have at least one business that relies on AWK for service. All in all, AWK has in excess of 15 million customers, serviced by its 6,800 employees. AWK’s massive footprint diversifies both market and geographic risk, ensuring the company will remain in business even if one or several of its markets encounter problems such as business closures, a population exodus or natural disaster.
The fact that AWK also provides wastewater services make the stock even more appealing. In total, AWK provides this essential service to more than 15 million United States residents as well as parts of Canada.
The POWR Ratings have AWK rated a “B” with a #2 overall ranking of 13 stocks in the water category. Take a close look at AWK’s POWR Rating components and you will find the stock has a “B” Buy & Hold Grade along with a solid “B” Peer Grade. The analysts’ high forecast for the stock is $146, meaning there is plenty of room for upward movement should the stock go on a bull run.
AWK is in expansion mode, scooping up water suppliers when prudent while simultaneously refocusing on managing cost outlays. The company’s new water rates that went into effect on the first of the year boosted revenue by more than $50 million. Another 45,000 customers were added to the company’s active customer base this past May as a result of recent acquisitions.
If everything goes as planned, AWK will move back toward its 52-week high of $141.70 in the third or fourth quarter of 2020.
American States Water (AWR)
Fresh water. Electricity. Wastewater. Each is an essential for people as well as businesses. The masses need water and electricity today and they will need them for years and decades to come. AWR provides these living essentials to Californians.
Water is especially important in California as the state has suffered through drought conditions in recent years. The planet’s ever-increasing temperature makes Californians’ need for water that much more pressing. AWR enjoyed gains of nearly 20% in 2019 alone. All in all, the stock is up 150% across the past half-decade.
The POWR Ratings have AWR ranked in the top half of all water sector stocks. With an analyst high target of $93 and considerable room between the stock’s current price and its 52-week high of $96.64, AWR looks quite appealing. AWR should at least hold steady amidst the economic recession, serving as a safe haven for investors to temporarily or permanently park their money.
California Water Service Group (CWT)
Ask anyone living on or near the West Coast about their water woes and you will be inundated with complaints about the ongoing battle for H2O. Water is in short supply, temperatures are on the rise and people continue to flock toward the lovely “left” coast, pushing up the demand for this liquid gold all the more. CWT will undoubtedly benefit from these trends in the short and long-term.
CWT provides water and wastewater to those living and working in California, New Mexico, Washington and even Hawaii. However, more than 90% of the company’s customer connections are in arid California. Furthermore, nearly 9 in 10 of CWT’s connections are in heavily populated areas of the Golden State: San Francisco, Los Angeles and the San Joaquin Valley.
Though CWT will likely request rate increases to compensate for heightened water expenses resulting from the state’s drought, demand is also likely to increase thanks to California’s seemingly enver-ending population boom. In fact, CWT’s stock is up more than 100% across the past five years as a result of this population explosion and the rising cost of water. At the moment, CWT is about $5 below the average analyst price target of $50.25.
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AWK shares were unchanged in premarket trading Tuesday. Year-to-date, AWK has gained 4.88%, versus a -4.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...
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