We recently published a list of 10 Best Water Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Ecolab Inc. (NYSE:ECL) stands against other 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”.
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).
A technician wearing a protective suit in a water treatment plant.
Ecolab Inc. (NYSE:ECL)
Number of Hedge Fund Holders: 59
Ecolab Inc. (NYSE:ECL) is a global leader in water, hygiene, and infection prevention solutions, serving industries such as food and beverage, healthcare, hospitality, and manufacturing. The company provides comprehensive water treatment technologies, industrial cleaning solutions, and digital monitoring systems to enhance operational efficiency and sustainability. ECL plays a crucial role in water conservation and quality management, helping businesses optimize water usage, reduce waste, and maintain regulatory compliance. Its innovative approach, driven by data analytics and advanced chemistry, enables clients to improve safety, minimize environmental impact, and extend equipment life.
Ecolab Inc. (NYSE:ECL) serves over 1 million customer locations across 40 industries in more than 170 countries. The company operates through a razor-razor blade model where more than 90% of revenues come from consumable products that are critical to customers’ operations, resulting in predictable revenue streams. ECL company achieved record high operating income margins of 16.8% in 2024 and is confident in reaching its 20% margin target by 2027. The company’s long-term financial targets include 5-7% sales growth, 12-15% adjusted EPS growth, and 90-100% free cash flow conversion. ECL’s total addressable market is approximately $152 billion, with nearly half representing opportunities within existing customers. Innovation is a key driver of growth, with the company anticipating its largest innovation pipeline of $1.7 billion in 2025.
Ecolab Inc. (NYSE:ECL) is well-positioned to capitalize on growing global challenges around public health, food scarcity, water stress, and climate change, leveraging its innovative solutions, digital capabilities, and deep industry expertise to drive consistent financial performance and help its customers achieve their sustainability goals. In the opinion of management, ECL’s balanced business model, strong cash flow, and disciplined capital allocation priorities position the company for continued growth and shareholder value creation.
Overall, ECL ranks 3rd on our list of best water stocks to buy according to hedge funds. While we acknowledge the potential of ECL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ECL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.