Water as a Commodity is More Scarce than it’s Been in Decades. As a Result, Water Stocks are Beating the Market.
Water stocks have been great performers and there’s a good reason why. 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” or “Colorado River water shortage” to remind you that not everyone is so fortunate, even here in the U.S.
Globally, 785 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 five water stocks and ETFs over the past two years, all of which have beaten the 48% return in the S&P 500 during that time:
5 Water Stocks and ETFs Beating the Market
- Middlesex Water Company (MSEX): +70%
- First Trust Water ETF (FIW): +57%
- Invesco Water Resources ETF (PHO): +56%
- Global Water Resources (GWRS): +55%
- PowerShares Global Water Portfolio ETF (PIO): +54%
Not all water stocks and ETFs have outperformed, of course. But of the 20 or so that I looked at, only a couple were actually down in the last two years.
The two stocks on this list are water utility companies. Global Water Resources is based in Arizona and provides “Total Water Service” that manages “the entire water cycle by owning and operating the water, wastewater and recycled water utilities within the same geographic areas in order to both conserve water and maximize its total economic and social value,” per the company’s website; Middlesex Water Company owns and operates water utility and wastewater systems in New Jersey, Delaware and Pennsylvania, and has raised its dividend for 48 consecutive years. The other three are ETFs whose holdings include some of the top water stocks from around the world.
All of them are growing; the two water stocks are expected to grow revenues by an average of 6% in 2021 despite disruptions to business from the ongoing COVID-19 pandemic. That may not sound like much. But up until a year or two ago, most water companies weren’t growing at all.
The water crisis is clearly on Wall Street’s radar, and the institutions are investing in the push to solve it. As with the coronavirus, 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.
Do you invest in water stocks? Why or why not?
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.