The Best Water Stocks to Buy in 2017

Commodities like gold and oil get all the attention, but the next big profits will come from water companies. Picking up shares of the best water stocks to buy now could be the most lucrative move you make in your investing lifetime.

Investing in water stocks may seem counterintuitive, given its apparent abundance. But investors who buy water stocks know the truth. Water - at least, the kind of water necessary for human survival - is much, much scarcer than most people realize.

Now a handful of companies are becoming industry leaders in the race to solve the growing water crisis. Right now four stand out to us as giving investors some of the strongest profit opportunities on the market today...

Why Water Is the Ultimate Commodity

What makes the case for investing in water so compelling is how massive the problem is.

While water covers almost 70% of the Earth's surface, just 2.5% of that is the freshwater that humans need for drinking, bathing, cooking, and agriculture. And only a tiny portion of that freshwater - 1% - is readily accessible.

According to National Geographic calculations, the 7.5 billion people on the planet must make do with just 0.007% of its water.

And that vital water is not evenly distributed. The United Nations estimates that nearly 800 million people don't have clean drinking water and 2.5 billion don't have basic sanitation.

But the world doesn't have much time to address these issues. The UN estimates we'll have 40% less water than we need by 2030 unless action is taken. And it'll get worse, as the global population is expected to grow more than 29% to hit 9.7 billion by 2050.

Over the next 20 years, more money will be spent on water than on all other types of infrastructure except roads. The McKinsey Global Institute estimates $12 trillion will be invested in water through 2030.

best water stocks to buy

The best water stocks to buy are the companies best positioned to provide the solutions to these problems. These stocks will be first in line to reap profits from this massive wave of spending.

We've found four water stocks that fit the bill. They cover four broad areas of water investing: utilities, technology, services, and infrastructure.

Take a look...

The Four Best Water Stocks to Buy in 2017

Best Utility Water Stock to Buy: American Water Works Co. Inc. (NYSE: AWK)

America Water Works is America's biggest publicly traded water utility. It serves 15 million people in 47 states and Ontario, Canada. That size and reach has helped AWK achieve impressive economies of scale.

This water stock's impressive performance has made it an investor favorite. In fact, it's been a core pick in our parent company's flagship publication, the Money Map Report, since December 2011.

AWK was chosen because it fits with Money Morning Chief Investment Strategist Keith Fitz-Gerald's strategy of investing in "Unstoppable Global Trends." In the case of American Water Works, those trends include demographics and scarcity/allocation.

"American Water Works is a rock-solid choice that will shield you from market volatility," Fitz-Gerald said. Since he first recommended AWK, the stock has gained 165%.

New Report: Keith Fitz-Gerald's Best Stocks to Buy for Mega-Profits in 2017

It's definitely been a long-term performer. American Water Works stock is up 275% over the past decade.

And that doesn't even include the steady dividend, which currently yields about 2%. The company just announced a 10.7% dividend increase. AWK has boosted its dividend every year since its IPO in 2008, a habit every investor will appreciate.

But it's not too late to invest in AWK stock because the growth story for this Voorhees, N.J.-based water utility is far from over. According to Morningstar, analysts estimate American Water Works' earnings will grow 7.9% a year for the next five years.

According to FactSet data, the company's earnings per share (EPS) will be $3.76 in 2020. Even if the price-to-earnings (PE) ratio drops a bit from 30 currently to the mid-20s, that would put the share price at about $95, a 19% gain.

Throw in the dividends - they should continue to rise as the payout ratio is just 55% ­­­- and you have a potential four-year total return in the 28% range.

These other three water stocks are just as impressive...

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Best Technology Water Stock to Buy: Calgon Carbon Corp. (NYSE: CCC)

The largest subsidiary of the California Water Service Group, Calgon Carbon Corp. sells a variety of water purification technologies. Though relatively small - Calgon Carbon has a market cap of just $751 million - it's the world's largest producer of granular activated carbon.

Calgon Carbon stock has not fared as well as American Water Works. Shares of CCC are down about 35% over the past two years. The business was hurt by weakening demand and the strong U.S. dollar over the past couple of years.

Last fall, the Pittsburgh-based company's financials took a hit from its $153 million acquisition of the Activated Carbon and Filter Aid Business from CECA, a subsidiary of the French-based Arkema Group.

That slammed CCC's 2016 Q4 earnings, causing a loss of $0.12 a share.

But the newly acquired business will pay off in 2017, as Calgon Carbon expects it to add $100 million in revenue. That will boost the company's sales by about 20%.

Its legacy business also figures to pick up as demand for clean water grows in the years ahead. According to FactSet, earnings are expected to bounce back to $0.20 by Q3.

That will cut the inflated PE of 55 by more than half and set CCC stock up for a run toward $20 from its current price of $14.75. The company is also a juicy acquisition target, which would deliver instant gains.

The icing on the cake is a dividend yield of $1.36%, which should rise as Calgon Carbon's fortunes improve.

Best Services Water Stock to Buy: Tetra Tech Inc. (Nasdaq: TTEK)

Tetra Tech is a Pasadena, Calif., company that provides consulting, engineering, program management, and technical services for water infrastructure projects.

TTEK stock has done well, having gained nearly 44% over the past 12 months. But Tetra Tech appears to be in a sweet spot now, with its already growing business well-positioned to reap any increases in water infrastructure spending.

That's because 43% of the company's business comes from state, local, and federal government. If Congress and President Trump make even a token effort to invest in water infrastructure, Tetra Tech will benefit.

In its most recent earnings, the company noted that earnings were up 17% year over year and the company's backlog had grown 34%.

And analysts have forecast a lofty 13.5% five-year growth rate.

According to FactSet, Tetra Tech earnings are forecast to increase from $1.42 in FY 2016 to $2.91 in FY 2019. The company's current PE of 29.9 is actually lower than the industry average of 36.2.

That would nearly double TTEK stock from $44 now to over $87 in less than three years. Tetra Tech also has a dividend yield of 0.82%, although the low payout ratio of just 16.5% suggests this is bound to improve.

Best Infrastructure Water Stock to Buy: Xylem Inc. (NYSE: XYL)

A global player in water, Rye Brook, N.Y.-based Xylem has all of the angles covered in this sector.

"What I like about Xylem is that its five so-called 'growth centers' - transport, treatment, dewatering, analytics and applied water systems - cover every stage of the water cycle," said Money Morning Executive Editor William Patalon, III.

Patalon first recommended XYL in November 2013. Since then, the stock is up more than 50%.

As with Tetra Tech, Xylem figures to reap a windfall not just from global concerns over adequate water supplies, but from investments in the replacement of aging water infrastructure.

"Xylem is clearly thinking ahead to the kind of market we're heading into - one different from today... one dominated by scarcity," Patalon said.

According to FactSet, Xylem's earnings will grow from $2.03 a share last year to $3.01 a share in 2019. With XYL's PE likely to pull back to the industry average of just under 26, that puts the 2019 target at about $78 a share - a potential gain of 50%.

Sweetening the pot a bit more is Xylem's dividend yield of 1.40%.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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