Five Water Stocks Hedge Funds Are Betting On

Investing in utilities can be quite safe and stable, but usually, returns are not very high. This is why many of these companies offer elevated dividend yields to attract shareholders. However, some analysts and investors have argued that water companies are set to post strong upside as water supplies tighten. But, what differentiates water companies between each other? How can an individual investor know which one to pick for better returns? One of the ways to narrow down the screening process is to look at the smart money sentiment towards the companies in question. Having this in mind, we have compiled a list of the most popular water stocks among the investors we track at Insider Monkey.

An everyday investor doesn’t have the same resources and capabilities to analyze different publicly-traded companies as hedge funds do. This is why it is a good idea to see what stocks hedge funds like the most and try to imitate some of their bullish moves in an attempt to reap market-beating returns. At Insider Monkey, we follow the activity of several hundred of the best-performing hedge funds as part of our strategy. We analyze their 13F filings and use the data to see what stocks they are collectively bullish on. Through extensive research we have determined that the best approach to outperform the broader indices is to follow hedge funds into their top small-cap ideas. In our backtests, a portfolio of the 15 most popular small-cap stocks generated monthly alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see more details here).

American States Water Co (NYSE:AWR)

Let’s start with American States Water Co (NYSE:AWR), the least popular water stock in this list, counting just nine funds from our database holding shares at the end of March. The stock has gained around 7% since the beginning of April, but is close to flat year-to-date. For the second quarter, American States Water reported revenue of $111.95 million, missing the estimates of $113.01 million, but EPS of $0.45 was higher than the expected $0.44.

Aqua America Inc (NYSE:WTR)

Next up is Aqua America Inc (NYSE:WTR), in which nine funds tracked by held shares at the end of March, up from seven a quarter earlier. The stock has gained over 10% since the beginning of the year and, based on the quarterly dividend of $0.19, it has a dividend yield of 2.33%. The company missed revenue expectations for the past three quarters, including the second quarter of 2016, for which Aqua America posted revenue of $203.9 million, versus estimates of $209.6 million, while EPS of $0.33 was in line with analysts’ expectations. Chuck Royce’s Royce & Associates reported ownership of 608,100 shares of Aqua America as of the end of the second quarter.

On the next page we will look into three more water stocks that hedge funds liked going into the second quarter of the year.

SJW Corp. (NYSE:SJW)

Among the funds that we track, 11 held long positions in SJW Corp. (NYSE:SJW) at the end of the first quarter, versus six funds a quarter earlier. Royce & Associates held 400,400 shares of SJW Corp at the end of June, while Mario Gabelli’s GAMCO Investors disclosed holding almost 258,500 shares in its 13F filing for the end of the second quarter. Since the beginning of the year, the stock has surged by nearly 36% and it currently sports a dividend yield of 2.01%. At the end of July, SJW Corp posted EPS of $0.82 on revenue of $86.9 million for the second quarter, beating the estimates by $0.41 and $11.9 million, respectively.

Companhia de Saneamento Basico (ADR) (NYSE:SBS)

Even more liked by hedge funds was Companhia de Saneamento Basico (ADR) (NYSE:SBS), in which, at the end of March, 11 funds from our database held almost 4% of the stock in aggregate. Matthew Tewksbury’ Stevens Capital Management held around 26,900 shares of Companhia de Saneamento Basico at the end of the second quarter. The stock of the Brazilian company more than doubled since the beginning of the year as Brazil is hosting the Olympic Games in Rio and despite economic and political turmoil in the country. In the last couple of weeks, Janney Montgomery Scott and JPMorgan Chase & Co. both downgraded the stock to ‘Neutral’ from the previous ‘Buy’ and ‘Overweight’ ratings.

American Water Works Company Inc (NYSE:AWK)

Finally, there’s American Water Works Company Inc (NYSE:AWK), which saw 21 funds among those we track long its stock at the end of the first quarter. Among the investors that reported their equity positions as of the end of June, Louis Navellier’s Navellier & Associates reported ownership of 120,200 shares of American States Water Co.  Shares of American Water Works Company are over 31% in the green year-to-date and sport a dividend yield of 1.91%. The company’s financial results for the second quarter came in mixed, with EPS of $0.77 topping the estimates of $0.73, but revenue of $827 million was $5.9 million lower than expected.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.