Why Water Stocks are Primed for a Big Run

Jeff Siegel

Written By Jeff Siegel

Posted June 5, 2023

It’s been one of the fastest growing cities for more than a decade. 

In fact, two years ago it became the fifth largest city in the United States, overtaking Philadelphia.

But for the city of Phoenix, things are about to slow down. 

As reported in Reuters, the state of Arizona has officially restricted future home-building in the Phoenix area due to a lack of groundwater, based on projections showing that wells will run dry under existing conditions.

The action by the Arizona Department of Water Resources stands to slow population growth for the Phoenix Active Management Area, home to 4.6 million people and one of the most rapidly expanding areas of the United States.

Thing is, even with a decline in population growth, the entire state of Arizona will continue to struggle to provide residents with necessary water resources as extreme heat and drought in and around Arizona will continue. 

The state can regulate the real estate market, but it can’t regulate Mother Nature.  And despite some of the strictest water conservation measures in the nation, Arizona is still pumping too much groundwater.

According to the Kyl Center, a water policy group, new industrial projects are sucking up groundwater without restrictions, and demand for water is outpacing any gains from conservation efforts.

While restricting home-building will certainly alleviate some of the pressure on water resources, that won’t be enough to rectify the problem.  Which is why the state of Arizona has committed $1 billion to boost water supplies for what’s being called “alternative water projects.”  These include everything from ocean desalination to drilling new wells to water reclamation and recycling, similar to what is now used in the Middle East. 

And all of these things will require new infrastructure, equipment and services, such as …

  • Pipe
  • Pumps
  • Valves
  • Filtration systems
  • Treatment systems
  • Water testing

While I don’t envy those burdened with the responsibility of ensuring that the economy of Arizona doesn’t implode for no other reason than lack of water resources, I also know this creates a tremendous opportunity for investors.  

Although water infrastructure has never been particularly sexy, it’s becoming more and more lucrative as extreme droughts and heat waves become the norm.  And some of the stocks that are likely to benefit from this include, but are not limited to …

  • Lindsay Corporation (NYSE: LNN)
  • Gorman-Rupp Co. (NYSE: GRC)
  • Pentair (NYSE: PNR)
  • Consolidated Water (NASDAQ: CWCO)
  • American Water Works (NYSE: AWK)
  • Danaher (NYSE: DHR)
  • Xylem (NYSE: XYL)

There are also a number of ETFs that will benefit from an increase in water infrastructure projects throughout the U.S., as well as on a global scale.  These include …

  • Invesco Water Resources ETF (NASDAQ: PHO)
  • Invesco S&P Global Water ETF (NYSE: CGW)
  • Invesco Global Water ETF (NASDAQ: PIO)
  • First Trust Water ETF (NYSE: FIW)
  • Ecofin Global Water ESG Fund (NYSE: EBLU)

For the record, I think you’ll get the most bang for your buck with EBLU, as it’s a bit undervalued compared to its peers.   Here’s a bit more about EBLU: https://etp.ecofininvest.com/funds/ecofin-global-water-esg-fund/#overview

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