How to Invest in Water Stocks
While water is considered one of the world’s most important commodities it’s not as easily traded like gold or oil. But that doesn’t mean to say investing in water stocks is not right at the top of most investors’ watchlists.
After all, Michael Burry, famous for predicting the subprime credit crisis and being played by Christian Bale in the movie The Big Short, is now purely focused on trading one commodity - water.
In this article, we discuss how to start investing in water stocks and some of the top water stocks in Europe, the UK and the US. Let’s get started in what could be a unique opportunity for this year!
Table of Contents
The Different Types of Water Companies
There are a variety of different types of water companies to invest in such as water utility companies that provide water for households, water desalination stocks that focus on converting salt water from the ocean to freshwater for use by humans and global water resources stocks that focus on all things related to water.
This is highlighted from the Lyxor World Water ETF (exchange traded fund). This fund tracks the world’s largest 30 companies involved in water infrastructure, utilities or treatment. You can invest in the fund like a stock, by buying shares of the fund.
Source: Admirals MetaTrader 5, WATP, Monthly - Data range: from 1 Oct 2007 to 14 Apr 2021, accessed on 14 Apr 2021 at 12:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.
The fund provider, Lyxor, provides detailed information regarding the stocks it holds within the exchanged traded fund. This is another way to identify some of the top water companies being focused on by investors.
While you may never know what stocks Michael Burry is buying, this can give an edge on where the institutional capital is. At the time of writing the top 10 holdings of the Lyxor World Water ETF include heavyweight utility companies such as US based American Water Works, European based Veolia Environment and UK based United Utilities Group.
These stocks and others make it to our list below and are discussed in more detail. Did you know that you can access live price data from the MetaTrader 5 trading platform provided by Admirals? You can access the platform via desktop download or web and also trade directly from the chart!
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Top 3 US Companies for Investing in Water
When most people think about investing in water they think of commercial products that use water as a drink. For example, these investors may focus on Arrowhead water stock, Hint water stock, Essentia water stock which was recently bought by Nestlé or other brands such as Zero Mass water stock and Hint water stock.
We can even put Coca-Cola in this mix as they own Smart Water stock among other drink brands. While these US based companies are focused on producing water-based drinks, many investors choose to focus on water utility companies as companies in the utility sector tend to give higher dividend payouts. Dividends are essentially a share of the profits, typically paid out quarterly.
Some companies are also focused on providing water treatment services for the mining sector such as BQE water stock. But for now, let’s focus on the most looked at water companies in the US.
1. American Water Works (AWK)
American Water Works was founded in 1886 and is the largest public utility company in the United States. It used to be a subsidiary of German company RWE Group before being spun off in an IPO on the New York Stock Exchange in 2008.
The company provides a range of services that provide drinking water, water and sewer line protection, wastewater systems and more to roughly 14 million people in the United States. The company makes more than $3 billion a year with most of its shares held by larger institutional investors.
Source: Admirals MetaTrader 5, AWK, Monthly - Data range: from 1 Apr 2008 to 15 Apr 2021, accessed on 15 Apr 2021 at 12:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.
The chart above shows the long term monthly price trend of American Water Works stock price. It’s clear to see the long term uptrend that has developed on the stock since 2008. This is evident from the alignment of the moving averages on the chart where the 20 period (blue) exponential moving average is above the 50 period (red) exponential moving average which is above the 100 period (green) exponential moving average.
Moving averages help to confirm the trend of the market as well as provide potential bounce points and turning points in the market. This is evident from the historical turns we have seen in the past on the blue line and red line on the chart above.
2. California Water Service Group (CWT)
The California Water Service Group is currently the third largest water utility company in the United States. The company’s focus is on providing drinking water and wastewater services to more than 2 million people in over 100 communities.
The company operates four different subsidiaries called California Water Service, Hawaii Water Service, New Mexico Water Service and Washington Water Service, providing revenues of more than $700 million a year.
Source: Admirals MetaTrader 5, CWT, Monthly - Data range: from 1 Oct 2005 to 15 Apr 2021, accessed on 15 Apr 2021 at 12:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.
The long term monthly price chart of California Water Service Group’s share price paints an interesting picture. From 2005 to 2015 the share price ranged between $24.45 and $16.40. In 2016, the share price surged higher and has maintained an uptrend since.
It’s clear to see the volatility of the share price during the coronavirus pandemic, as price spiked all the way back down to the 100 period (green) exponential moving average. However, the price has recovered since then and continues to maintain its upward trend.
3. Essential Utilities (WTR)
Essential Utilities was founded in 1886 and was formerly known as Aqua America. The company provides drinking water waster treatment services and infrastructure and operates in a variety of different states including Virginia, New Jersey, Indiana, Texas, Ohio, Pennsylvania and others.
Nearly 50% of the company’s total base comes from its largest subsidiary Aqua Pennsylvania. The company is known to be quite active in acquisitions with a $4.27 billion purchase of Peoples Natural Gas in Pittsburgh PA in 2018 with 300 more acquisitions between 1993 and 2013.
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Top 2 European Companies for Investing in Water
There are a variety of different water companies in Europe. Some are even global leaders. The makeup of the different companies are similar to the ones in the United States where you have water utility companies, wastewater treatment companies and so on.
Let’s take a look at some of the major players operating in this space.
1. Veolia Environnement (VIE)
Veolia Environnement is a French company that has a global footprint. Founded in 1853, the company employs more than 315,000 in 48 countries. Most of its employees operate in France and in other European regions but the company has strong bases in Asia, South America and Africa. In fact, the company has more than 2,500 subsidiaries around the world.
The company, also known as just Veolia, operates in three main sectors which includes water management through Veolia Water, waste management through Veolia Environmental Services and energy services. Revenues are one of the highest for a water utility company, nearing €30 billion a year.
2. Suez Environnement (SEV)
Suez Environnement is another French company that specialises in water management and wastewater management. The company has undergone some huge changes since being founded in 2008.
Perhaps the biggest change is the fact that on 12 April 2021, Veolia Environnement agreed to buy Suez for a deal that values the company at around $15 billion. This marks an end to a very long and bitter takeover battle.
The merger is likely to create one of the world’s largest waste and water services companies with more than €37 billion in annual revenue.
Top 2 UK Water Companies
The UK water sector is fiercely competitive but is controlled by a few major players. The stocks tend to be popular with UK investors due to most utility companies - not all - paying good dividends. Let’s take a look at the top two water companies in the UK.
1. Severn Trent (SVT)
Even though Severn Trent was only founded in 1989, it has grown to become the largest UK water company in the UK. The company employs more than 15,000 people and services more than 8 million customers with a focus on providing fresh water and treating sewage.
The company has revenue of more than £1.8 billion supplying 4.5 million households and businesses in the area it operates in which is mainly the Midlands. At the time of writing, Severn Trent had a dividend yield of 4.14%.
2. United Utilities
United Utilities was only founded in 1995 through the merger of North West Water and NORWEB. The company manages water and wastewater services for consumers and businesses in the North West of England.
The company owns 166 water supply reservoirs and nearly 600 wastewater treatment centres, as well as 37 renewable energy facilities. Operating revenues exceed £1.8 billion each year and, at the time of writing, had a dividend yield of 4.47%.
Why Start Investing in Water?
When asking the question are water stocks a good investment, it’s important to understand that water utility companies are considered to be ‘defensive stocks.’ This term is used to describe stocks that provide some consistency as they are not affected by how the economy is doing.
Utilities, household staples and healthcare companies are all considered defensive stock sectors. These are the products that everyone needs, no matter what is happening in the economy. However, it doesn’t mean to say the stock price will be stable which is important to know when deciding the best water stocks to buy.
In some countries, water utility companies are heavily regulated which can impact the share price if the company’s market share is taken away due to regulation. In other countries, some water utility companies are not regulated but can be affected by contamination and extreme weather conditions.
Many investors are now choosing to focus on water companies that have a strong focus on renewable energy and climate change friendly business practices. This is a new theme that has developed since the pandemic which is affecting commodities like water.
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