In this article, we will take a detailed look at the 10 Best Water Stocks to Buy According to Hedge Funds.
The water business in the USA is a diverse sector that includes various activities necessary for the development of urban and rural communities. Public utilities are the backbone of this industry – hundreds of public services offer ordinary, everyday water supply and wastewater treatment services to millions of homes and businesses. Such organizations provide the source, treatment, and distribution of potable water, in addition to wastewater collection and treatment to meet environmental standards. Beyond the realm of public utilities, the water industry includes private companies whose expertise is focused on water infrastructure engineering, consulting, and construction. These companies often collaborate with government agencies to modernize aging water systems and implement sustainable solutions, meaning that a significant portion of the water management market is financed from public budgets. They also provide cutting-edge technologies for water purification, desalination, and leak detection, which play a crucial role in improving the efficiency and reliability of water systems.
Several trends and tailwinds are currently shaping the water business in the USA and the rest of the world. One of the most significant trends is the increasing focus on sustainable water management practices due to growing concerns about water scarcity and climate change. Smart water grids and modern metering infrastructure are some of the inventive interventions being implemented to help make water use more efficient and also cut losses. The emergence of digital technologies such as IoT and AI is disrupting the status quo, providing new ways for water utilities to monitor and manage their operations, allowing for real-time data collection and analysis followed by predictive maintenance – this will not only help make water consumption more sustainable, but may also provide significant opportunities for profitability expansion by cutting some operational costs. Another significant trend is the rising investment in water infrastructure, fueled by government initiatives and public-private partnerships aimed at upgrading aging water systems and expanding access to clean water.
From an investment perspective, the future of the water business in the USA looks bright, with several factors contributing to its potential growth. First, there’s an increasing demand for clean and safe water, which is primarily driven by population growth and urbanization. This issue presents substantial opportunities for water treatment companies and distributors. Moreover, the increasing awareness and focus on the environmental and sustainability aspect of the operations, primarily caused by regulatory requirements, are likely to fuel demand for innovative water management solutions and sustainable practices. Investors are particularly interested in the water solutions sector due to its incredible resiliency during recessionary periods; as many water-related projects are sponsored by public budgets, companies exposed to water operations usually have a low equity beta, meaning that they are likely to outperform the broad market during bearish periods. This feature is particularly attractive during stock market peaks – the US equity market is currently near its all-time highs, all while the actions of the new Trump 2.0 regime are starting to cause cracks in the outlook of businesses and consumers. With many surveys and intelligence agencies reporting a sentiment change towards more pessimistic scenarios, as well as significant cuts in the outlook for capital spending by private entities, water-related businesses may become more favored in the eyes of the “smart money”. In view of this, we will take a look at some of the best water stocks to buy now.
An aerial view of a water treatment plant, emphasizing the use of reverse osmosis technology.
Our Methodology
We used the Insider Monkey proprietary hedge fund holding database and identified the 10 most popular water companies, ranked by the number of hedge funds which own the stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. Xylem Inc. (NYSE:XYL)
Number of Hedge Fund Holders: 32
Xylem Inc. (NYSE:XYL) is a leading global water technology company, with operations in over 150 countries, that provides innovative solutions for the transport, treatment, testing and efficient use of water by municipal, industrial, commercial and agricultural clients. The company specializes in water infrastructure, applied water systems, and measurement & control solutions, offering products such as pumps, filtration systems, smart metering, and advanced analytics. With a strong focus on sustainability and water conservation, XYL is deeply embedded in the global water business, addressing critical challenges such as water scarcity, wastewater management and climate resilience.
Xylem Inc. (NYSE:XYL) delivered record-breaking performance in 2024 with revenue growing 6%, EBITDA margins expanding 170 basis points, and double-digit EPS growth. The company demonstrated strong execution with Q4 orders growth across all segments at mid-single digits or better, providing momentum into 2025. The integration of Evoqua is progressing ahead of schedule, delivering cost synergies significantly faster than expected. The company is implementing a significant transformation initiative, moving from a matrix to a single-segment structure to streamline operations and enhance competitive positioning. For 2025, management projects organic revenue growth of 3% to 4%, and EBITDA margin expansion of 70 to 120 basis points to reach 21.3% to 21.8%.
Xylem Inc. (NYSE:XYL) is seeing increased demand for outsourced water solutions, though this can drive some lumpiness in performance as revenue streams are associated with system build-outs before generating long-tail recurring revenue. Water Solutions and Services segment demonstrated robust demand with orders increasing 8%, driven by strength in capital projects and dewatering. Revenue growth was strong at 11%, with strength in capital projects, dewatering and services. The segment maintains a $1 billion backlog and strong funnel activity across all businesses, which demonstrates a strong outlook on the company’s water business.
9. Mueller Water Products Inc. (NYSE:MWA)
Number of Hedge Fund Holders: 35
Mueller Water Products Inc. (NYSE:MWA) is a leading manufacturer and supplier of products and services used in water distribution and infrastructure systems. MWA provides a wide range of solutions, including valves, fire hydrants, pipe fittings, and leak detection technologies, catering primarily to municipal and industrial water systems. The company plays a crucial role in ensuring the efficiency, safety, and longevity of water networks, helping cities and utilities manage water flow, reduce losses, and modernize aging infrastructure.
Mueller Water Products Inc. (NYSE:MWA) achieved record results in the latest quarter, driven by net sales growth of 18.7% YoY that exceeded expectations. The company delivered strong financial performance with adjusted net income per diluted share of $0.25, representing a 92% increase compared to the prior year, while generating $42 million in free cash flow. Based on strong 1Q 2025 performance and benefits from recent price actions, the company increased its 2025 guidance for net sales, representing a YoY increase of 4.2% to 5.7%. A significant operational milestone was achieved with the closure of the legacy brass foundry and transition to a state-of-the-art facility, which is expected to generate an 80- to 100-basis-point annualized improvement in gross margin starting in 2H 2025. The company maintains a strong financial position with a net debt leverage ratio below 1x and no debt maturity until 2029.
Management of Mueller Water Products Inc. (NYSE:MWA) believes they can capture the benefits from the investments needed to address the aging North American water infrastructure and the expected incremental spending associated with the federal infrastructure bill, particularly with lead service line replacement projects. During the latest earnings call, the CEO said that MWA is well positioned to accelerate sales growth and capture the benefits from favorable long-term end market growth trends through product innovation and service.
