Water stocks are poised to be one of the fastest growing investment sectors in 2020 – and with good reason.
According to the U.N., water usage has grown twice as fast as the world’s population over the last century. Today, we use about 30% of the world’s total accessible renewal supply of water. In less than 10 years, that percentage could reach 70%. By 2025, almost 2 billion people will live in areas plagued by water scarcity, with 75% of the world’s population living in water-stressed regions!
Making matters worse, the water infrastructure in most developed countries is aging… and we haven’t taken any steps to upgrade it yet. The American Society of Civil Engineers (ASCE) believes that most of our drinking water infrastructure is nearing the end of its useful life and gave the country’s drinking water and sewage infrastructure a “D” grade.
Without upgrades, the U.S. is facing a loss of almost $500 billion in GDP due to increased costs to households, loss of worker productivity, increased wasting of water, and more frequent disasters like what recently happened in Flint, Michigan.
And they’ve created an amazing opportunity for you too.
That’s why we’ve created the official Water Stock Guide 2020.
This guide has over 180 pages of tremendous information on the 20 best water stocks to buy this year. Each water stock covers 8 pages, with segments detailing each company’s operations, financial history (going back 10 years), management team, and valuation.
The Framework for This Guide
This guide is meant to help the intelligent investor find the best water stocks to invest in and to provide relevant information to help investors allocate their capital wisely.
In this guide, you’ll find valuable information on the 20 top water companies whose stocks are listed on either the New York Stock Exchange (NYSE) or the Nasdaq. If an investor bought all 20 of these stocks five years ago, the portfolio would have returned 88%. That’s almost a 30% outperformance of the S&P 500 during the same period.
As a value investor focused on fundamental analysis and long-term investment horizons (and as a proponent of the value investing and intelligent investing philosophy), we’ve taken a page out of Warren Buffett’s book and organized this guide based on the four investment criteria he looks at when investing in a business or stock:
Investing should not be complicated. In fact, the game is really in making your decision-making process as basic as possible – and in sticking to that process. Foolish investments occur when investors start thinking they know more than they really do and then make complex and misguided decisions.
As Ben Graham, the father of value investing, once said: “The investor’s chief problem – and even his worst enemy – is likely to be himself.”
If you can find a business that just meets Buffett’s four simple criteria – a business you can understand, with favorable long-term prospects, operated by honest and competent people, and available at a very attractive price – then you’ll be well on your way to investing success.
At a Glance
“One That We Can Understand”
The first page is the “At a Glance” section. This section is to display important data to know about the company’s stock. This section includes:
- Company name, logo, and Stockopedia’s StockRank™ for the company’s stock.
- A snapshot of the company’s current stock data and ratios, such as stock price, stock performance, P/E and P/B, etc.
- A chart of the stock’s recent price history.
Stockopedia’s StockRanks™ is a ranking system that blends each stock’s quality, value, and momentum into one easy to determine score. You can read more about Stockopedia here.
“One that we can understand”
This section is intended to help you understand the company, its business model, and its operations. It includes:
- A brief description of the business and its different segments, including products it manufacturers, customers it serves, etc.
- Relevant data from the respective company’s investors relations website.
“With favorable long-term prospects”
The next section is the “Financial Overview” section. While an analysis of a company’s long-term prospects requires knowledge of the industry’s dynamics, its competitive positioning in that industry, and a variety of other qualitative factors, a business’s financial health and historical financial performance can go a long way in helping you answer that question.
Firstly, a Financial Brief is provided to describe the company’s most recent financial situation. Secondly, a Financial Summary graphic is displayed to show the business’ financial numbers from the past five fiscal years, plus the TTM (Trailing Twelve Months), and the next two years of estimated results. CAGR (Compounded Annual Growth Rate) percentages for each metric are also provided.
Additionally, there are four charts to show a visual of the numbers discussed in the Financial Summary. The graphics show quarterly earnings per share (EPS), annual profit margin, annual debt to assets, and annual cash flow. Actually being able to see these metrics displayed on a graph can really help visualize complicated numbers.
For your convenience, below you will see some definitions of some of the terms that will be used the Financial Overview. These crucial terms good to know for any security on the market.
“Operated by honest and competent people”
The following piece is the “Management Assessment” section, which is intended to help you analyze the quality and capability of the company’s executive management team, as well as the strength of its corporate governance.
This section includes a list of the company’s executive management team, annual compensation figures, and a biography of each company’s CEO. Additionally, this section has a paragraph dedicated to insider trading. Insider buying or selling can be a telling sign of how the executives perceive the future of the company.
ISS Governance QuickScore
This section also includes an overview of each company’s Board of Directors and a summary of the company’s ISS Governance QuickScore. A QuickScore of 1 means that the company is in the 1st decile of governance practices (i.e., high quality governance practices and low governance risk) and a score of 10 means the company is in the 10th decile of governance practices (i.e., low quality governance practices and high governance risk). An overall score is provided, as well as an individual score for Audit & Risk Oversight, Board Structure, Shareholder Rights, and Compensation.
“Available at a very attractive price”
The final portion for each company contains the “Valuation” section. This is the final piece of the puzzle. The relationship between price and value is one of the most important points to keep in mind when investing.
Almost any stock can be a great investment if the price is low enough, and every stock could turn out to be a terrible investment if the price paid is too high.
There are many different ways to calculate the intrinsic value for a company. If you put 1,000 investors in a room and told them to value a particular stock, you would likely get 1,000 different answers. One way to determine the value of a company and its relationship to the stock’s price is to look at various valuation multiples.
In order provide a ballpark estimation, the Valuation Summary includes the fair value price, courtesy of Finbox. You can read more about how they arrive at these estimations here. While these assessments are helpful, keep in mind that they are only estimations based on numbers and data. It is the task of the individual investor to determine their own intrinsic value of a stock.
With the financial data provided in this guide and a good analytical look into the future prospects of the company, you should be able to determine your own intrinsic value without a problem.
Lastly, to determine whether the business is on solid financial ground, there is a graphic business health. The companies are ranked on three separate scoring levels: the F-Score, the Z-Score, and the M-Score.
- F-Score: Ranks a company’s financial position on 9-point scale.
- Z-Score: Measures a company’s risk of bankruptcy based on an averaged scale.
- M-Score: Determines how likely a company is manipulating their earnings results.
Just remember: Price is what you pay. Value is what you get.