In this article, we discuss the 5 best water stocks to buy now. If you want to read our detailed analysis of the water sector, go directly to the 10 Best Water Stocks to Buy Now.
5. Xylem Inc. (NYSE:XYL)
Number of Hedge Fund Holders: 25
Xylem Inc. (NYSE:XYL) is a Rye Brook, New York-based designer and manufacturer of products and solutions related to water and wastewater management.
On August 3, Deane Dray at RBC Capital increased the price target on Xylem Inc. (NYSE:XYL) from $91 to $105 and maintained an Outperform rating on the stock. The analyst highlighted the company’s solid results for Q2 2022. During the three months ended on June 30, revenue was reported at $1.36 billion, beating the analysts’ forecast of $1.33 billion. Meanwhile, the adjusted EPS of 66 cents surpassed the analysts’ forecast of 54 cents. Xylem Inc. (NYSE:XYL) pays an annual dividend of $1.20 per share, which translates into an annual forward dividend yield of 1.21% as of August 24.
Not only did the company report strong Q2 2022 results, but it also increased its 2022 revenue and EPS guidance. Xylem Inc. (NYSE:XYL) now anticipates 8% – 10% YoY growth in revenue as compared to prior guidance of 4% – 6% YoY growth. The company reported revenue of $5.2 billion in 2021, and at the midpoint guidance of 9% YoY growth, Xylem Inc. (NYSE:XYL) anticipates 2022 revenue to be around $5.69 billion. Meanwhile, the average estimate provided by 19 analysts stands at $5.39 billion.
Xylem Inc. (NYSE:XYL) has a backlog of over $2 billion as of Q2 2022, and its book-to-bill ratio stands at 1.4. The company expects its margins to expand further as supply-chain-related challenges subside and the backlog is converted.
Impax Asset Management was the leading hedge fund investor in Xylem Inc. (NYSE:XYL) during Q2 2022.
4. American Water Works Company, Inc. (NYSE:AWK)
Number of Hedge Fund Holders: 29
American Water Works Company, Inc. (NYSE:AWK) is a New Jersey-based public utility company that provides water and wastewater services. The company has a headcount of over 6,400 employees.
American Water Works Company, Inc. (NYSE:AWK) is the biggest water utility company in the US. The company is on a growth path and has carried out more than 20 acquisitions since the start of 2021. Through one of its subsidiaries, American Water Works Company, Inc. (NYSE:AWK) also acquired Jefferson Utilities for $30 million in July. Not only is the company making acquisitions, but it is also improving its existing infrastructure by investing heavily in new technology. In May 2022, American Water Works Company, Inc. (NYSE:AWK) announced its plan to spend $3.4 million to upgrade its aging water pipelines in Pennsylvania.
American Water Works Company, Inc. (NYSE:AWK) outperformed earnings estimates for Q2 2022 as it reported an adjusted EPS of $1.20 compared to analysts’ forecast of $1.15. Meanwhile, for 2022, American Water Works Company, Inc. (NYSE:AWK) reiterated its EPS forecast of $4.39 to $4.49 as compared to the consensus forecast of $4.46. American Water Works Company, Inc.’s (NYSE:AWK) annual forward dividend stands at $2.62 per share as of August 24.
ClearBridge Investments shared its bullish outlook on American Water Works Company, Inc. (NYSE:AWK) in its Q2 2022 investor letter:
“We were active in positioning the portfolio during a volatile market, taking advantage of an attractive entry-point to buy American Water Works Company, Inc. (NYSE:AWK), which owns a high-quality regulated U.S. water utility portfolio, with above average EPS growth outlook driven by upgrade and expansion capex and tuck-in acquisitions.”
3. Pentair plc (NYSE:PNR)
Number of Hedge Fund Holders: 31
Pentair plc (NYSE:PNR) is a water infrastructure company that caters to the demand of retail consumers and industries. The retail consumer business targets swimming pool-related goods like filters, heaters, and pumps. Meanwhile, the industrial business provides fluid management services to food and beverage corporations and contributes 40% to the top line.
Joseph Giordano at Cowen gave Pentair plc (NYSE:PNR) stock a target price of $65 along with an Outperform rating in an investment note issued on July 27. The analyst highlighted that the company reported better-than-expected Q2 2022 results and narrowed its 2022 EPS guidance to $3.70 to $3.75 compared to the consensus forecast of $3.72. The analyst also added that the stock will trade in line with the sentiments of the housing market data until clarity is obtained for the 2023 pool season. Pentair plc’s (NYSE:PNR) annual forward dividend yield stands at 1.75% as of August 24.
Overall, analysts believe Pentair plc (NYSE:PNR) is well-positioned in the water industry as the company is introducing new segments such as Manitowoc Ice to its business model and investing in technology to improve its efficiency levels.
Of the 912 hedge funds in Insider Monkey’s database, Pentair plc (NYSE:PNR) was held by 31 hedge funds as of Q2 2022.
2. Ecolab Inc. (NYSE:ECL)
Number of Hedge Fund Holders: 43
Ecolab Inc. (NYSE:ECL) is a Minnesota-based developer and provider of water cleaning, purification, and treatment services to three million customers spread across 40 industries.
The sanitation and hygiene conglomerate company came into the limelight after the billionaire philanthropist Bill Gates reported a stake of $25.4 million or 144,000 shares in the company on August 17. Ecolab Inc. (NYSE:ECL) is making significant efforts to keep water safe from bacteria and pathogens and is keeping its facilities up to the regulatory authorities requirements. Ecolab Inc. (NYSE:ECL) pays a quarterly dividend of $0.51 per share, translating into an annual dividend yield of 1.21% as of August 24.
Post the better-than-expected Q2 2022 results, David Begleiter at Deutsche Bank gave Ecolab Inc. (NYSE:ECL) stock a target price of $180 and maintained a Buy rating on the stock on July 27. Experts believe that during the inflationary period, Ecolab Inc. (NYSE:ECL) has been able to offset the impact of raw material headwinds through better pricing power.
Ecolab Inc. (NYSE:ECL) was discussed in the Q1 2022 investor letter of Baron Funds. Here’s what the investment management firm said:
“Lastly, we added to our position in the leading water, hygiene and infection prevention company, Ecolab Inc. (NYSE:ECL), as the stock sold off on concerns over rising raw material costs. We believe the sell-off is overdone as Ecolab’s strong competitive positioning and proven pricing power would enable it to offset the rising costs (though with a lag). We think that the company will continue benefiting from the secular growth trends towards sustainability, while still having a long runway for growth with only an 8% share of its estimated $147 billion addressable market.”
1. Danaher Corporation (NYSE:DHR)
Number of Hedge Fund Holders: 83
Danaher Corporation (NYSE:DHR) is a Washington, D.C-based diversified conglomerate. The company has a diverse portfolio of water quality optimization entities under the Environmental and Applied Solutions segment of the business that plays an integral role at every stage of the water cycle.
Through one of its subsidiaries, Pall Corporation, Danaher Corporation (NYSE:DHR) intends to be a key player in the Legionella testing market. The testing market is expected to compound annually by 8.2% from 2022 to 2027 to $439 million, according to Illinois-based research firm MarketsandMarkets. The bacteria are known for causing Legionnaires’ disease, a severe form of pneumonia that causes 8,000 to 18,000 deaths in the US annually.
Danaher Corporation (NYSE:DHR) has been termed a great stock to hold during economic uncertainty by Brendan Leucke at Bernstein. On August 16, Leucke gave Danaher Corporation (NYSE:DHR) stock a target price of $340 along with an Outperform rating. Danaher Corporation (NYSE:DHR) offers strong business fundamentals and has an annual forward dividend yield of 0.35% as of August 24.
Cooper Investors shared its stance on Danaher Corporation (NYSE:DHR) in its Q1 2022 investor letter. Here’s what the firm said:
“This combination of attributes was not in favour during a quarter where the market rotated into larger, more traditional index heavyweights that, while growing more slowly and generating lower returns on capital, typically trade on lower headline multiples. In Healthcare for example, we saw portfolio holdings Danaher fall 10-15% in the quarter. Given the relative business quality and growth prospects for a life sciences capital allocator champion like Danaher versus a large diversified pharma company, we think this period of underperformance is likely more a blip than a trend.”
You can also take a peek at the 10 Stocks That the Russia-Ukraine War Will Affect in the Future and Cathie Wood’s 10 Favorite Stock Picks For The Rest of 2022.
