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7 Best Water Stocks to Buy Now

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Water security is an increasingly important issue. Between rising demand and changing climate patterns, we’ve seen increasing water shortages in recent years. This puts water stocks in the spotlight heading into 2023.

Last year, we saw the Mississippi River fall to historically low levels, which caused significant problems for shipping and logistics.

Out west, low levels of rainfall have caused key water sources such as the Colorado River to come up short of normal levels, leading to scarcity and rationing. And now, with the winter storms and cold this December, water levels have hit historic lows in numerous lakes in the east, putting water availability into question as well as jump-starting water stocks.

All these events put more pressure on regulators to take concrete steps to shore up the nation’s water supply and infrastructure. That, in turn, should be good news for the companies that provide water directly or which produce the pipes, meters and other such infrastructure for handling it.Consider these water stocks for your portfolio.

BMI Badger Meter $109.81
VMI Valmont Industries $340.23
XYL Xylem $110.52
AWK American Water Works $154.23
WTRG Essential Utilities $47.94
GWRS Global Water Resources  $13.50
WMS Advanced Drainage Systems $82.61

Badger Meter (BMI)

Source: Pavel Kapysh / Shutterstock.com

It can be hard to find pure-play water stocks. Many companies in the sector are industrial firms with many lines of business, one of which is focused on water.

Badger Meter (NYSE:BMI), by contrast, is more of a pure-play water company. As the name would suggest, the company’s primary line of business is in selling water meters. It has a range of water meters from traditional static devices to newer radio and software-controlled ones. The company also sells a number of ancillary products such as valves and sensors.

In recent years, Badger Meter has broadened its business with a big push in water quality, industrial discharge monitoring and other related services.

Value investors may find it hard to get comfortable with BMI stock, as shares currently sell for more than 40 times earnings. That premium valuation may be warranted, however.

The company has put up a sparkling 17.2% annualized total returns over the past decade. Historically, the company’s strong and consistent earnings growth has justified the valuation. And that will probably be true throughout the 2020s as well given growing interest and investment in the water sector.

Valmont Industries (VMI)

a ground-up view of multiple cell towers in a circle

Source: Shutterstock

Valmont Industries (NYSE:VMI) is an industrial conglomerate. It focuses on producing fabricated goods for a variety of settings and applications.

Its product line is extensive, however, it generally consists of things such as metal, wood, and steel poles used in traffic, lighting, cell phone towers and the like.

Valmont is a play on water because it sells a variety of devices used in irrigation for agricultural purposes. The agriculture market saw some additional demand in 2022 following the Russian invasion of Ukraine, which caused farmers to plant more heavily in other parts of the world.

Additionally, in many areas, drought and water scarcity are great concerns. Valmont’s water solutions can be an important part of reducing usage and maximizing efficiency with existing water resources.

VMI stock jumped by more than 30% in 2022 thanks to various tailwinds in the agriculture and transportation markets. However, earnings are also slated to rise roughly 25% for the full-year 2022, meaning that shares haven’t gotten much more expensive on a relative basis. Valmont currently trades for around 24 times forward earnings, making it one of the more tempting water stocks.

Xylem (XYL)

xylem app

Source: IgorGolovniov / Shutterstock.com

Xylem (NYSE:XYL) is a dominant player in the water infrastructure space. The company’s business lines include water measurement, water infrastructure, and applied uses of water.

Xylem’s products help customers with water storage, testing, and efficiency.

Xylem has built its business to provide everything that a water utility could need. Whereas many companies just offer meters or pipes or valves or whatnot, Xylem can sell the whole range of things a water utility is looking for. This creates efficiency in terms of sales and marketing.

XYL stock was down sharply earlier in 2022. However, shares are back to almost flat as the calendar turns to 2023. Xylem is far from a bargain at this higher stock price. That said, the company has proven to be a power player in its industry, and it is faring well again now despite the broader economic headwinds.

For long-term investors that want the leading water companies, Xylem is one of the best water stocks to buy on any corrections.

American Water Works (AWK)

Water droplet

American Water Works (NYSE:AWK) is one of the largest publicly-traded water companies out there with a market cap of around $25 billion.

The company provides water and wastewater services to 1,700 towns across 14 states with more than 3 million customers in total.

Historically, AWK stock has been quite expensive, as investors have paid up for the firm’s reliable cash flows and steady results.

Arguably, shares were in fact, inexplicably expensive in 2021, as the stock topped 40 times earnings at one point.

However, AWK stock has dropped by almost 20% in 2022. Meanwhile, earnings are expected to rise approximately 5% for full-year 2022, and then closer to 7% annually after that. And, with the share price decline, the P/E ratio has now dipped below 35. That’s still not a huge bargain, but it’s an okay entry point for a highly reliable and steady water utility such as this one.

Essential Utilities (WTRG)

telephone poles and power lines with sunset as backdrop

Source: Shutterstock

Essential Utilities (NYSE:WTRG) is another of the bigger publicly-traded water companies. The firm previously traded as Aqua America, but it made a $4.3 billion acquisition of People’s Gas in 2020.

In doing so, it became a multi-service utility and changed its name. Despite the broader business model, the company still generates the majority of its revenues from water services.

Water utilities tend to be slow-moving operations, with revenue growth typically being not much faster than population growth plus inflation in a given service area. However, there is an opportunity for Essential in terms of upgrading and modernizing older water systems.

The water quality crises we’ve seen in cities such as Flint, Michigan and Jackson, Mississippi have highlighted the importance of not letting water systems rust away.

Essential Utilities has increased its dividend payments for more than 25 consecutive years, making it a Dividend Aristocrat. Shares currently yield 2.4%.

Global Water Resources (GWRS)

A photo of small bubbles in a container of water.

Source: khak/ShutterStock.com

Global Water Resources (NASDAQ:GWRS) is a small Arizona-based water utility. It primarily serves a handful of towns and communities in the greater Phoenix and Tucson metro areas.

Due to quirks of Arizona law, there has historically been a large number of tiny water utilities only serving one subdivision or other such areas. Global Water has acquired more than half a dozen of these other water utilities in recent years, expanding its footprint.

Arizona has one of the fastest-growing economies and populations in the country due to its strong economic prospects and sunny weather. Arizona is enjoying a particular boom due to important industries which are setting up shop there.

In recent years, Arizona has attracted large new factories for high-tech industries such as semiconductors and electric vehicles. Some of these, such as Lucid Motors’ (NASDAQ:LCID) facility in Casa Grande, are right next to Global Water’s service territory, giving the utility another avenue for demand growth.

Advanced Drainage Systems (WMS)

A zoomed in photo of a drop of water hitting a container of water's surface.

Source: Sambulov Yevgeniy/ShutterStock.com

Advanced Drainage Systems (NYSE:WMS) rounds out the list with its focus on the safe handling of spent water. Specifically, it is a leader in managing stormwater and septic wastewater.

In addition to that, it is also the second-largest plastic recycling company in North America, processing more than 500 million pounds annually.

WMS stock went public in 2014 and became a star by the end of the decade. That’s thanks to the company’s ongoing track record of successful organic growth along with various strategic acquisitions. Shares have soared from $30 in 2019 to a recent high of $150 thanks to the firm’s impressive growth trajectory.

However, shares have sold off sharply in recent months, sliding to just $83 today. At this new discounted price, shares are going for just 13 times forward earnings. That’s a bargain, especially as analysts see the company continuing to grow at a double-digit pace in 2023.

On the date of publication, Ian Bezek held a long position in GWRS and WTRG stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.