Tap Water With These Stocks And ETFs

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Includes: CGW, CTWS, FIW, MSEX, PHO, YORW
by: Zacks Funds

Water plays a major role in the evolution of the economy and, of course, human life.

Though water accounts for three-fourths of the total earth surface, fresh water accounts for a meager 3% of the total. As a result, about 650 million people across the globe do not have access to fresh drinking water putting them at risk of infectious diseases and premature death, according to United Nations' estimates. This is primarily thanks to limited supply, an ever-expanding population, poor sanitation, and growing demand for consumption. Notably, about 70% of the total demand comes from irrigation whereas demand from industrial applications and domestic households account for about 22% and 8%, respectively.

Given the scarcity of drinking water, companies and governments are coming up with new ways to recycle, manage, and desalinate water resources. Utility operators have already started to invest in their aging infrastructure and President Barack Obama is seeking an 18% increase in federal spending next year for safe drinking water. As per the Environmental Protection Agency (EPA), U.S. water infrastructure needs more than $384 billion over the next two decades to ensure safe drinking water to Americans. Further, about $271 billion is needed to upgrade the treatment of plants' storage tanks and water distribution systems over the next five years.

Given this, water could be an important growth industry and an excellent investing area as utility operators start putting their money into this corner to meet growing global demand for fresh water. Further, our Zacks Industry Rank confirms the upside to this industry as water utility has a solid rank in the top 9% at the time of writing. And investors' thirst could easily be quenched by tapping this growing opportunity with our chosen stocks and ETFs.

Stocks in Focus

We have used our Zacks stock screener to find out the best stocks in this space. The parameters include Zacks Rank #1 (Strong Buy) or #2 (Buy), positive current-year earnings estimate revisions over the past 30 days and positive current-year EPS growth.

Connecticut Water Service, Inc. (NASDAQ:CTWS)

This Connecticut-based company is a regulated water operator providing water service to people throughout towns in Connecticut and Massachusetts. The company has seen estimates rising by a couple of cents over the past 30 days for this year with an expected earnings growth rate of 2.78%. The stock has a Zacks Rank #2 with a solid Momentum Style Score of A and is up 13.3% so far this year.

Middlesex Water Co. (NASDAQ:MSEX)

This New Jersey-based company provides quality water and wastewater service to residents in parts of New Jersey and Delaware, and beyond. It has seen solid earnings estimate revision of four cents over the past 30 days for this year to $1.30, representing substantial growth of 6.56% year over year. The stock has a Zacks Rank #2 with a solid Momentum Style Score of A and Growth Style Score of B. MSEX has gained 15.3% in the year-to-date timeframe.

The York Water Company (NASDAQ:YORW)

This Pennsylvania-based company impounds, purifies and distributes drinking water. The Zacks Consensus Estimate for 2016 has been revised up from $0.99 to $1.00 over the past 30 days reflecting year-over-year growth of 3.61%. The stock has a Zacks Rank #2 with a Momentum Style Score of B. It has returned 20.1% so far this year.

ETFs in Focus

While there are four water ETFs available in the market, we have highlighted three funds that are in the green in the year-to-date timeframe.

PowerShares Water Resources Portfolio (NYSEARCA:PHO)

This fund provides exposure to the U.S. water utility stocks that create products to conserve and purify water for homes, businesses and industries. It tracks the Nasdaq OMX US Water index and holds 32 securities in the basket with nearly double-digit allocation to the top firm. Other firms hold less than 7.8% share. The fund has amassed $642.8 million in AUM and is considered liquid when compared to the other choices in the space. It charges investors 61 basis points a year in fees and has added 0.4% in the year-to-date timeframe.

Guggenheim S&P Global Water Fund (NYSEARCA:CGW)

This ETF provides global exposure by tracking the S&P Global Water Index. It holds 53 stocks in its basket with the largest allocation of over 7% to the top two firms while other firms hold less than 5.6% share. The fund has managed assets of nearly $358.1 million and trades in volume of 52,000 shares per day on average. It charges 64 bps in fees and expenses from investors. In terms of country exposure, American stocks make up for nearly 39% of assets closely followed by United Kingdom with nearly 17.6% share. CGW is up 2.5% so far this year.

First Trust ISE Water ETF (NYSEARCA:FIW)

This ETF follows the ISE Water Index, which is a benchmark of firms that derive a substantial portion of their revenues from the potable and wastewater industries. Holding 35 stocks, it is pretty well spread out across components with each holding not more than 5.10% of assets. The fund has amassed $105.1 million in its asset base while charging investors 59 bps in annual fees. Volume is light at nearly 13,000 shares a day on average. The fund has delivered impressive returns of over 9% in the year-to-date timeframe.

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