In many parts of the world, it’s either difficult for consumers and farmers to access enough fresh clean water, or it’s getting significantly harder to do so. According to Fidelity, roughly 2 billion individuals worldwide are unable to obtain fresh drinking water. You might think this is only a problem in the developing world, but that’s not the case.
Arizona is facing a perennial water crisis, while California and Texas are coping with major shortages of the crucial liquid. Even Las Vegas is dealing with its own water issues. Other parts of the U.S., including New York City and communities along the Mississippi River, are having problems caused by a combination of climate change and aging water infrastructure. Moreover, American allies such as India and Thailand have their own water issues. Given all of these points, the top American and European water companies can grow tremendously in the longer term. Here are three water stocks to buy now.
Veolia (VEOEY)
France’s Veolia (OTC:VEOEF) is one of the largest desalination firms in the world. The desalination sector is expected to grow at an annual rate of 8.9% between 2024 and 2029. From a common sense perspective, it seems likely that many parts of the world will eventually deal with their water shortages through desalination. Indeed, California, Texas, Israel, and Saudi Arabia have all embraced the technology.
In light of these points, it’s not surprising that Veolia’s revenue climbed to $50 billion last year from $45.9 billion in 2022, while its operating income jumped to $3.1 billion in 2023 from $2.65 billion in 2022.
Moreover, in the first quarter of 2024, the sales of the firm’s water technologies unit, which includes its desalination business, surged 15% year-over-year, while the unit’s bookings climbed by a very impressive 50% YOY to 1.8 billion euros.
And boding well for the firm’s ability to win many desalination deals in the Mideast in the future, Veolia in Q1 obtained a contract to desalinate water for 2 million inhabitants of Dubai.
Ecolab (ECL)
Ecolab’s (NYSE:ECL) Nalco unit helps companies lower their water consumption and sells reverse osmosis membranes and chemicals used in desalination. Given the latter point, Ecolab should benefit significantly from the expected 8.9% annual growth of the desalination sector between 2024 and 2029.
Nalco also helps companies treat their wastewater. At a time when a high proportion of citizens in America and many other countries are very concerned about the environment, companies are eager to be seen as environmentally friendly. Since effectively treating wastewater is one component of being “green,” the demand for Nalco’s wastewater treatment solutions should remain strong going forward.
On July 8, investment bank Stifel upgraded its rating on ECL stock to buy from hold. The bank expects Wall Street analysts to increase their estimates for the company over the longer term, and it raised its price target on the shares to $283 from $233.
Analysts, on average, expect the company’s EPS to climb to $7.43 in 2025 from $6.57 this year. In 2023, the firm generated EPS of $5.21.
Consolidated Water (CWCO)
Consolidated Water (NASDAQ:CWCO) builds desalination plants and water treatment plants. Like Ecolab, the company is well-positioned to benefit from increased demand for desalination plants and companies’ need to be good stewards of the environment.
In Q1, Consolidated’s top line jumped 21% versus the same period a year earlier to $39.7 million while its EPS surged to 43 cents versus 26 cents in Q1 of 2023. Moreover, its manufacturing revenue soared 57% YOY to $5.3 million.
Since the company provides services revenue on the plants that it builds, the huge jump in its manufacturing revenue suggests that its services revenue growth will accelerate over the longer term. And because services revenue tends to carry higher profit margins than manufacturing revenue, its profit growth looks poised to accelerate over the longer term as well.
Despite the firm’s strong growth and outstanding outlook, its Enterprise value/EBITDA ratio is a very low 8.6 times. Additionally, it had $46 million of cash as of the end of Q1 and only $2.45 million of debt.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.