10 Best Water Stocks to Buy According to Hedge Funds

8. A. O. Smith Corporation (NYSE:AOS)

Number of Hedge Fund Holders: 37

A. O. Smith Corporation (NYSE:AOS) is a global manufacturer specializing in water heating and water treatment solutions for residential, commercial, and industrial applications. Headquartered in Milwaukee, the company is a leading provider of high-efficiency water heaters, boilers, and purification systems, with a strong presence in North America, China, and India. The innovative technologies of AOS focus on energy efficiency, sustainability, and smart water management, catering to growing demand for reliable and eco-friendly water solutions. Its extensive distribution network and commitment to research and development have solidified its reputation as a trusted name in the water industry.

A. O. Smith Corporation (NYSE:AOS) reported lower sales and earnings in 2024 compared to their record 2023 performance. In North America, sales increased slightly due to higher boiler and water treatment sales along with water heater pricing benefits, though these were offset by lower heater volumes. The company faced challenges in China where weak economic conditions negatively impacted consumer demand, leading to a 4% YoY decrease in the Rest of World segment local currency third-party sales. The company took strategic actions including completing the construction of a tankless manufacturing facility, implementing a strategy to improve North America water treatment business margins, and reorganizing the China business to reduce costs.

Despite a slow 2024, the outlook for 2025 is optimistic, as management projects EPS guidance of $3.60 to $3.90 per share, with the midpoint slightly higher than 2024 adjusted EPS. A. O. Smith Corporation (NYSE:AOS) plans to repurchase approximately $400 million of shares in 2025, higher than previous years, reflecting confidence in strong free cash flow generation. Management expects relatively flat industry growth in core North America water heater and boiler markets, while anticipating continued soft market conditions in China. The restructuring actions in China are expected to be mostly implemented by the second quarter with anticipated annual savings of approximately $15 million.