Water as a Commodity is More Scarce than it’s Been in Decades. As a Result, Water Stocks are Beating the Market.
A good friend of mine who lives on top of a mountain in Vermont doesn’t have consistent access to clean water. No, he’s not the Grinch, living alone in some cabin with his dog. He lives with his family adjacent to a popular ski resort, surrounded by neighbors who are stuck with the same problem. The water quality has improved of late, but they pay through the nose for it – like more than $100 a month. Crazy.
Most of us take water for granted. It’s the most abundant resource on the planet after all, and it’s normally cheap – $2 per 1,000 gallons, for the average American. But all I have to do is utter the words “Flint, Michigan” to remind you that not everyone is so fortunate, even here in the U.S.
Globally, 844 million people lack access to clean water; 2.1 billion people don’t have clean drinking water in their homes. Progress has been made, for sure; between 1990 and 2015, 2.6 billion people in developing countries gained access to clean drinking water. But the world’s surging population combined with the effects of global warming—extreme drought in some areas, extreme flooding in others—means water scarcity still affects four out of 10 people.
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With clean water becoming an increasingly scarce resource, water is more valuable than it’s been in decades. And so are the companies that supply it.
That’s why water stocks have been among the market’s best performers of late. Just look at the returns of these 10 water stocks and ETFs over the past year, all of which have beaten the 26% return in the S&P 500 during that time:
10 Water Stocks and ETFs Beating the Market
- Companhia de Saneamento Basico do Estado de Sao Paulo (SBS): +32% in the last year
- Consolidated Water Co. (CWCO): +35%
- York Water Co. (YORW): +49%
- Invesco Water Resources ETF (PHO): +31%
- First Trust Water ETF (FIW): +31%
- American Water Works (AWK): +41%
- Aqua America (WTR): +48%
- Tortoise Global Water ESG Fund (TBLU): +32%
- PowerShares Global Water Portfolio ETF (PIO): +28%
- Global Water Resources (GWRS): +31%
Not all water stocks and ETFs have outperformed, of course. But of the 20 or so that I looked at, only one was actually down in the past year.
Most are water utility stocks. Companhia de Saneamento provides water and sewage services in Brazil; American Water Works is based in New Jersey and serves 15 million people in the U.S. and Ontario; Consolidated Water develops and operates seawater desalination plants and water distribution systems in the Cayman Islands, providing potable water to government utilities in the Caymans, the Bahamas and Belize.
All of them are growing; the six water stocks on this list are expected to grow revenues by an average of 9% this year. That may not sound like much. But up until a year or two ago, most of them weren’t growing at all.
Like most utility stocks, all of them pay a dividend. And with the stock market at all-time highs and a short-term correction likely on the horizon, utilities are a good hedge against possible impending volatility.
The water crisis is clearly on Wall Street’s radar, and the institutions are investing in the push to solve it. Let’s hope it is solved—sooner rather than later.
Until then, you can profit by investing in the companies trying to do the solving.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post has been updated from an original version, published in 2019.