Water management stocks: infrastructure and water management

Access to clean water is one of humanity’s most basic needs, so there will always be a demand for the services of companies that provide this resource, i.e. water management stocks. Water consumption is increasing year by year, as the graphs below show. The valuations of companies operating in this sector are generally not exceptionally high, as most of them are older, proven market players. With a few exceptions, water management stocks are ideal for risk-averse investors, as they typically have stable, slowly growing revenues and profits, and are less threatened by market disruption.

There is no substitute for water. While oil can be replaced by solar energy, natural gas by hydrogen, nothing can replace water. That is why it is often referred to as “blue gold” in the investment world.

💡You can read our other articles about sustainability here: Green investments

💧Why should you invest in water management stocks?

If you're looking to add stability to your portfolio, the water sector can be an excellent foundation. Here are three reasons why you should pay attention to it:

• 💧 Stability and maturity: Most of the companies in this sector didn't start today. They are old, large companies with established business models and stable revenues. Their valuations don't usually fluctuate like the tech sector, and the risk of bankruptcy is much lower.
• 📈 Constantly growing demand: The graphs show that water consumption is increasing year by year globally, while supplies are finite. Climate change and population growth are forcing governments to develop.
• ⚙️ The efficiency imperative: This is the most exciting investment story. According to statistics, the amount of water evaporated from reservoirs alone exceeds the total industrial and residential consumption. Companies that offer solutions to minimize losses serve a huge market.

For those who would like to do a little research, it is worth reading the GWI reports: GWI extension.

💦What are the most important problems to be solved in the field of water treatment?

However, there is one area that definitely needs improvement: and this is the amount of water wasted. As you can see from the graphs, we waste much more water than we actually consume. The main goal of companies operating in this sector is to provide clean water while minimizing water loss in the process. Consumption is generally divided into three categories:

• 🌾Agricultural – Water used for irrigation and livestock watering.
• 🙋‍♀️Residential (Household) – Household water use for drinking, cleaning, cooking and other purposes.
• 🏬Industrial – Hydropower, as well as water used for industrial processes in factories.

Evaporation from water reservoirs also represents a huge loss, the amount of which exceeds our total residential and industrial consumption.

💪The 4 main categories of the water market: What can you invest in when water management stocks come into play?

We have classified these organizations into 4 distinct categories, with possible overlaps between them.

🌀Water Treatment

Water must be purified to make it safe for human consumption and for the environment when it is released back into lakes and rivers. Organizations operating in this field manufacture water treatment equipment and devices that they either use themselves or sell to other organizations operating water treatment plants.

• 🤔What do they do? By manufacturing water treatment equipment, developing filtration systems and producing chemicals.
• 🤔Who are they selling to? For utility companies or directly for industrial players.

water management stocks: companies involved in water management

🏬Utilities

Utilities operate the water delivery infrastructure – such as water mains, water towers, public wells – and ensure that water flows from the tap in our homes.

• Investment type: This is the safest segment. Their income is regulated, their cash flow is predictable, and they pay dividends frequently.

Water utilities

💧Efficient Infrastructure

These companies focus on creating solutions that minimize water loss and energy use while maximizing overall system efficiency.

• 👿The problem: Often 4-5 units of water are wasted due to leaks and evaporation compared to 1 unit of utilization.
• 😋The solution: smart metering, leak detection sensors and modern pumping systems. This is the most technologically advanced category.

Efficient transportation infrastructure companies

🚿Irrigation

Agricultural water use accounts for a huge portion of our total water consumption.

Of the three main categories of water consumption (agricultural, residential, industrial), agriculture accounts for the largest share, making efficient irrigation techniques vital. This mainly includes irrigation pipes, machinery, and agricultural infrastructure.

• Possibility: Efficient irrigation techniques (drip irrigation, precision farming) are vital to maintaining food supplies. Machinery and pipe manufacturers that are involved in this can count on stable demand.

Irrigation

📊Top Water ETFs: If you don't want to choose water management shares between

If you don't want to browse individual company balance sheets or are afraid you won't pick the best company, exchange-traded funds (ETFs) offer excellent diversification. These funds bundle dozens of water management companies into a single package.

The most popular water-focused ETFs:

• PIO (Invesco Global Water ETF)
• BITCH (Invesco Water Resources ETF)
• CGW. (Invesco S&P Global Water Index ETF)
• FIW (First Trust Water ETF)

💡You can read more about ETFs in our article here: ETF report, buying guide

❔Risks and analysis aspects

Although water is considered a defensive sector, it is not without risk. What should you pay attention to?

• 🆓Regulation: Water is a fundamental right, so states often limit the ability of utilities to raise prices, which can limit profits.
• 🗺️Climate: Although water scarcity increases demand for technology, extreme weather (droughts, floods) can damage physical infrastructure.

Water Management Stocks Summary

• 🚰 Access to clean water is a basic human need, so the demand for companies providing the service is constant and predictable.
• 🛡️ Players in the water treatment market are generally mature companies with stable revenues, which are ideal for risk-averse investors.
• 📊 Water consumption is divided into three main areas: agricultural, domestic and industrial use - each of which follows its own investment logic.
• 🚀 One of the biggest growth opportunities in the sector is reducing waste: currently in some areas, 4-5 times more water is wasted than we use.

📈How to analyze water management stocks with iO Charts?

When choosing water management companies, it is key to examine the fundamentals. Since these are often dividend-paying companies, it is important to see if the payout is sustainable.

With iO Charts, you can confidently incorporate these stocks into your strategy:

1. 📈Fundamental analysis: Check the debt, dividend and P/E ratio of the selected utility company on our individual stock pages (example: AWK stock).
2. 📊Hybrid Portfolio: Since it is a defensive sector, it can be a great way to offset your riskier assets. Our platform lets you see your safe water ETF and your volatile tech stocks or cryptocurrency positions in one place, giving you a true picture of the risk of your entire portfolio.
3. 🛡️Green investments: If sustainability is important to you, read our other articles on the topic: Green investments

💡Manage your investments in our Portfolio Manager!

Frequently Asked Questions (FAQs)

Why are water management stocks a good defensive investment?

Because water is needed even in times of crisis. People can save up for a new car or a vacation, but they still have to pay their water bill, and industry also needs water for production. This means stable, predictable income for companies.

Which is the best water ETF?

There is no single “best,” but some of the most popular include PHO (Invesco Water Resources) and CGW (Invesco S&P Global Water Index). You should also look at the expense ratio and which regions they focus on (US vs. Global).

What are the main sectors of the water industry?

We distinguish four main categories: Water Treatment (purification), Utilities (service), Efficient Infrastructure (technology) and Irrigation (agriculture).

How much water do we waste?

Statistics show that the system is extremely wasteful: in some cases, we waste 4-5 times more water (due to leakage, evaporation, poor technology) than we actually use. This is one of the biggest business growth opportunities in the sector.

How does climate change affect these stocks?

It has a dual effect. On the one hand, water scarcity increases the demand for efficient technologies and water treatment, which can increase prices. On the other hand, weather extremes (e.g. unexpected frosts or floods) can increase maintenance costs for utilities.

What are the best water management stocks?

Among the market leaders, American Water Works is considered one of the most stable players, providing predictable returns through its extensive regulated service areas. Next to it, the technology-focused Xylem stands out, specializing in water purification and transportation solutions and smart metering systems. From the European market, the French Veolia and Suez can be mentioned as giant companies with a global presence, while in more specialized areas, the water analysis divisions of Danaher or Lindsay Corporation and Valmont Industries, interested in agricultural irrigation technology, are among the favorites of investors.

What is included in the set of water management shares?

This category includes three main groups: utilities, technology manufacturers, and infrastructure developers. Utilities are directly responsible for providing water to households and businesses, as well as for wastewater disposal, while technology companies produce equipment such as pumps, filtration systems, and desalination plants. They also include companies that manufacture pipes, valves, and reservoirs needed to build water networks, as well as chemical companies that produce additives needed to disinfect and treat water.

What do water management stocks do?

These companies are involved in all phases of the water cycle, from freshwater extraction to treatment and distribution to the recycling of used water. Their main activities are the provision of drinking water, wastewater treatment and the production of ultra-pure water for industrial processes. From an economic perspective, they are typically considered defensive securities, as the demand for water services is not dependent on economic cycles and a significant portion of their revenues come from long-term, often government-regulated contracts, which allows for continuous dividend payments.

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