Hands down, water is the most valuable commodity on Earth. But with a prolonged drought sending reservoir levels at Lake Mead to dangerous lows, many expect the U.S. government to soon declare a water shortage there. As climate change impacts this essential resource, investors should look into water stocks from companies that offer consistent service and intriguing solutions.
As Bloomberg recently reported, the Lake Mead reservoir — where the world-famous Hoover Dam is located — “is part of a broader network of natural and artificial aqueducts and dams that supplies water to 40 million people and homes, farms, manufacturers and businesses across several states, tribal lands and parts of Mexico.”
“Lights stay on in Phoenix, Tucson, Las Vegas, San Diego, Los Angeles and other Southwestern cities because Hoover Dam hydropower helps generate the region’s electricity,” the article continues. The economic firepower of these cities alone is more than enough to require a national solution.
Although presumably most folks have gotten the message by now, a solution isn’t as easy as everyone pitching in to conserve this precious resource. Here’s the deal: “Dry, sizzling summers and warmer winters that restrict water supplies may now be the norm, courtesy of a permanently altered climate.” Unfortunately, we may have to learn to live with less when it comes to water.
Out of sheer necessity, affected regions are exploring groundbreaking (but expensive) technologies like desalination — turning saltwater into drinkable water — as a stopgap. These specialists, along with companies in the water treatment space, will probably see their equity value rise. Here are seven water stocks to put on your radar:
- York Water (NASDAQ:YORW)
- Essential Utilities (NYSE:WTRG)
- Global Water Resources (NASDAQ:GWRS)
- Xylem (NYSE:XYL)
- Danaher (NYSE:DHR)
- Veolia (OTCMKTS:VEOEY)
- Acciona (OTCMKTS:ACXIF)
Despite the overwhelming need for this irreplaceable resource, nothing in the market is a sure thing. With so much attention still on speculative trades, water stocks may encounter choppiness. But as long as you invest with a long-term outlook, you’ll probably win out in the end.
Water Stocks: York Water (YORW)
When I write about dividend plays, I usually try to fit in York Water. An investor-owned public utility firm based in Pennsylvania, the company was founded in 1816 by a group of local entrepreneurs who sought access to water to protect against fire-related threats.
In modern times, York Water “supplies nearly 20 million gallons of water every day and has more than 71,000 residential, commercial, and industrial customers.” The company has the distinct honor of being the oldest investor-owned utility in the nation. It also holds the record for the longest consecutive dividend streak, which started in 1816.
While I don’t want to jinx anything, I highly doubt that York Water is going to give up its record-holding status. Can you imagine being the management team responsible for breaking a 200-year-plus dividend streak? Just from a stability and security standpoint, YORW is well worth considering if you want to build a position in water stocks.
Essential Utilities (WTRG)
Another utility firm based in Pennsylvania, Essential Utilities covers regions in Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana, Virginia and of course its home market. It specializes in drinking water and wastewater treatment infrastructure and services. Essential Utilities will likely see rising demand as climate change forces a rude awakening among American consumers.
According to Columbia Climate School, several factors related to a changing climate could have a negative impact on our water. For instance, “Warmer air can hold more moisture than cool air. As a result, in a warmer world, the air will suck up more water from oceans, lakes, soil and plants. The drier conditions this air leaves behind could negatively affect drinking water supplies and agriculture.”
Now, we’re probably not going to see a Mad Max scenario where people fight for plastic water battles. Instead, the change will likely be much more mundane. Life will look normal, except that everyone will be paying higher prices for water. And with this precious resource, everyone must pay.
As we move closer to this unfortunate reality, WTRG shares and other water stocks may see a boost from the expected rise in demand.
Water Stocks: Global Water Resources (GWRS)
If you talk to 100 Americans about climate change, you’re invariably going to find a few who aren’t interested (to say the least) in the environment or sustainability. Well, as with anything in life, every action has a reaction. For every person or company that vehemently opposes sustainability measures, there’s another that passionately supports them.
Global Water Resources is in the latter category, and that’s most evidenced by its core business divisions. On paper, it provides water, wastewater and recycled water utility services. The latter is an area of particular interest.
According to the company’s website, “Recycled water is what we produce when we treat and purify wastewater. We distribute recycled water throughout the communities we serve in a separate system of pipes. We use recycled water for a variety of outdoor uses.”
Global Water calls its approach, “Total Water Management.” It controls the entire cycle from drinking water to wastewater. As the company put it, its system “protects supplies in areas where water is scarce, making supplies available for additional growth and long-term sustainability.” It looks like sustainability advocates like Global Water have the right idea.
Billed as a large American water technology provider, Xylem offers solutions for public utility, residential, commercial, agricultural and industrial needs. If you take a look at its website, though, you’ll quickly discover that no single sentence could do the company justice. If I had to try, I’d say that Xylem is a one-stop-shop for any water-based challenge.
Xylem offers a decision intelligence platform to help enterprises make the best use of water. Under this umbrella, the company provides solutions such as its trademarked BLU-X Wastewater Network Optimization, a system that “helps utilities optimize networks and operations at significantly lower cost.”
For me, XYL stock is compelling because of its underlying agriculture products and irrigation systems. As the New York Times detailed in June 2021, California farmers in particular are making drastic choices about their businesses because of declining water levels. To help remedy this situation, companies like Xylem will be called into action.
It’s no wonder, then, that XYL stock is one of the top performers among water stocks. Its shares are up 26% year-to-date (YTD) and still going strong.
Water Stocks: Danaher (DHR)
Based in Washington, D.C., Danaher is a diversified conglomerate. Designing, manufacturing and marketing professional, medical, industrial and commercial products and services, Danaher has its hands in multiple endeavors. Thus, it’s no surprise that the science and technology innovator has a few things to say about water.
Under the Danaher Water Platform, the namesake corporation features a diverse portfolio of water quality optimization companies. These groups help reshape how everyday individuals approach the precious resource. Essentially, by leveraging Danaher’s complete water cycle solution, no drop goes unaccounted for.
Starting from the source, Danaher directs water resources to either drinking water plants for consumer distribution or to industrial channels. Following industrial usage and collection from consumers, wastewater treatment facilities clean the resource for later integration with the environment. And don’t worry, the arrows in this supply chain chart ultimately only flow in one direction.
For investors, Danaher is an intriguing water stock because the underlying company offers multiple revenue streams across various industries. It’s a hot performer as a result, up more than 35% YTD.
Perhaps the cruelest irony in the ongoing debate over climate change is that water covers approximately 71% of the earth’s surface. Therefore, an obvious solution to the problem is to take water from the ocean and make it potable by clean out the salt and other gunk. Sure enough, there are a few publicly traded companies specializing in this process called desalination.
One of them is Veolia, a French transnational company focused on water management, waste management and energy services. Under these broad categories, Veolia has a seawater desalination division.
The organization has been at it for a while, with “more than 40 years of experience, technologies and knowledge in desalination.” Veolia has built more than 1,950 reverse osmosis desalination plants and systems in 85 countries during that time. The company claims that its facilities produce more than 6.75 million cubic meters of freshwater daily for municipal and industrial needs.
It may sound too good to be true, but VEOEY stock is up nearly 30% YTD, so investors clearly love it. However, per MIT Technology Review, desalination (especially via reverse osmosis) is expensive due to large electricity requirements.
Water Stocks: Acciona (ACXIF)
If you want another option in the desalination game, you may want to check out Acciona, a Spanish multinational conglomerate dedicated to the development and management of infrastructure and renewable energy. As a diversified corporation focusing on sustainable solutions, it is part of a worldwide effort to address climate change.
Like its French competitor, Acciona prides itself on being a world leader in desalination plant construction with acumen in reverse osmosis technology. More importantly, the company has an extensive operational track record. For example, in May of this year, management announced that it will build and operate a desalination plant in Los Cabos, Mexico.
Further, in late December 2020, Acciona announced that the Saline Water Conversion Corporation awarded it and its partner RTCC a $348 million contract to design and build a desalination plant. The site, known as Shuqaiq 1, will be located on the Red Sea coast in Saudi Arabia. The agreement demonstrates how much confidence the international business community has in Acciona’s expertise.
While exciting, it’s also worth emphasizing that desalination is a work in progress. For it to truly become viable, the process must come down in price. Still, if you’re a patient investor, AXCIF stock might be worth a look or a buy with speculation funds.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.