Water is one of the most essential resources in the world. Unfortunately, it is increasingly scarce in certain regions, creating shortages that could become a big problem in the coming decades.
The global population just hit 8 billion, yet the total amount of fresh water on the planet has remained constant. Droughts in California and other parts of the American West have made the region the driest it has been in at least 1,200 years.
For inverstors, the silver lining to water shortages is that a growing number of companies are working to use techology and innovation to combat the water crisis. As water shortages become more of an issue, analysts say some of these companies could make excellent long-term investments. Here are seven water-related stocks investors should watch.
American Water Works is a water utility that provides water and wastewater services to industrial, residential and commercial customers. CFRA Research analyst Daniel Rich says U.S. federal water infrastructure spending will be a bullish catalyst for American Water Works, and he anticipates the company’s earnings and dividend payouts will outgrow its peers through 2025. Rich projects that American Water Works revenue growth will rebound from a 4% decline in 2022 to at least 7% growth in 2023, driven by both rate increases and customer acquisitions. CFRA has a “hold” rating and $152 price target for AWK stock, which closed at $149.75
Roper Technologies develops software used for a wide variety of business applications. It is also the parent company of Neptune Technology Group, which partners with water to provide innovative data and software solutions. Morningstar analyst Joshua Aguilar says Roper’s 10% organic revenue growth, 17% earnings growth and significant margin expansion in the third quarter are all encouraging trends. Roper says the company’s 15% organic revenue growth in technology-enabled products was particularly impressive. Aguilar is especially bullish on Roper’s Neptune water meter business. Morningstar has a “buy” rating and $530 fair value estimate for ROP stock, which closed at $424.03
Danaher produces professional, medical, industrial and commercial products. The company’s water quality business includes precision instrumentation and advanced purification technology used to analyze, treat and manage water supplies. Bank of America analyst Derik de Bruin says the fundamentals of the bioprocessing market remain strong, and Danaher is well positioned to deliver at least mid-single-digit revenue growth in its core business in 2023.
Tetra Tech is a global consulting, program management, engineering, construction management and technical services provider. The company’s One Water solutions specifically address complex water issues, such as climate change impacts, contamination and population pressures. CFRA analyst Jonathan Sakraida says global sustainable infrastructure and environmental services demand will remain high. Sakraida says Tetra Tech is well positioned in several high-growth markets, including water infrastructure, climate resilience, and hydro and wind power. He says the company’s spinoff of its industrial Fortive business and the sale of its dental business have improved Danaher’s growth and margin profiles. Bank of America has a “buy” rating and $335 price target for DHR stock, which closed at $261.16 on Nov. 28.