Should You Bet on Water Commodity Stocks?

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Dec. 9 2020, Updated 8:05 a.m. ET

Water futures are joining the ranks of other commodities and trading on stock exchanges. Michael Burry, who famously bet against CDOs (collateralized bet obligations) in 2008, was also bullish on water. Burry is a well-known investor and hedge fund manager. Should you also bet on water as a commodity? What are the best water stocks to invest in?

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People can't deny the scarcity of drinking water. Unsafe drinking water accounts for many deaths in the developing world. Water scarcity is only expected to increase amid uncertain rainfall patterns. According to Tim McCourt of the CME Group, which has launched the water futures linked to the California spot water market, almost two-thirds of the global population will face water scarcity by the middle of this decade.

investing in water stocks
Source: Pixabay
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Best water stocks to invest in

Water stocks can be broadly divided into two categories. The first category includes utility companies that are involved in water distribution. The second category includes companies that are ancillary to the water distribution industry and supply them with equipment and services for water treatment and distribution.

Top water utility stocks

The following is a list of the top water utility stocks. The utility sector is largely regulated. Utility stocks are seen as defensive plays that offer a high dividend yield.

  • American Water Works Company
  • Middlesex Water
  • California Water Service Group
  • Essential Utilities
  • SJW Group
  • Connecticut Water Services
  • York Water
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Companies that are in the ancillary water industries

Apart from the stocks mentioned above, there are many other ancillary companies that help with equipment and water treatment. The companies include:

  • Evoqua Water Technologies
  • Watts Water Technologies
  • Xylem
  • Pentair
  • Itron
  • Badger Meter

Ancillary stocks are an integral part of the water industry ecosystem. They help treat water, which is then supplied by the utilities.

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Other water stocks to consider

There are companies that supply portable water and others that sell water purification instruments. Primo Water is a good stock to consider. The company supplies potable water in the U.S. and Canada. Primo Water says that its water as better than what's supplied by utility companies.

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What are the top water ETFs?

If you want diversified exposure to water stocks, you could consider one of the ETFs that invest in companies across the water supply value chains. Some of the popular water ETFs are:

  • the Invesco Water Resources ETF
  • the First Trust Water ETF
  • the iShares Global Water UCITS ETF
  • the Guggenheim S&P Global Water Index ETF

While the first two ETFs invest in U.S. water companies and ADRs of U.S.-listed companies, the last two also look at global water companies that can add more diversification to your portfolio.

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Are water stocks a good investment?

Water is among the most important commodity for mankind. While almost 70 percent of the earth is water, according to National Geographic, only about 2.5 percent of that is freshwater. More than half of freshwater isn't accessible because it's stored in snowfields and glaciers, which leaves only 1 percent of global water available as freshwater.

In 2019, Burry revealed that he exited his positions in water and farmland. However, water stocks and water futures could be a way for investors to play the climate change story. The shortage of water as a commodity is real and companies in the water industry ecosystem look like good stocks to buy for the long term.

In 2019, Burry pointed out that passive investing could trigger the next market crash. In 2020, Burry revealed that he is short on Tesla stock. He even called upon Elon Musk to go for another stock issuance. Tesla actually announced a stock sale within days of Burry’s tweet.

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