By Patti Domm
The world is getting thirstier for water. Investors may want to consider some of the stocks as demand rises for everything from pipes to desalination plants and water treatment for data centers.
The water sector is vast and global. Clean water is in short supply and trillions of dollars will be needed for infrastructure over the next decade. The sector spans the gamut, including utilities, storm management, treatment services, and equipment like meters, pumps, valves and pipes.
The near-term has been choppy. The Iran war blurred the outlook for important markets like construction. Residential and nonresidential construction have been weak, and there's been pushback from utilities on new projects. Hot new areas like liquid cooling for data centers is still relatively small.
Recent earnings reports haven't helped. Badger Meter, a large "smart meter" company, missed analysts' estimates for first-quarter earnings and was impacted by project delays from utilities. The stock is down 29% this year.
Water company Xylem reports earnings on Tuesday before the market opens, providing another window into the industry's health.
Xylem, a Barron's stock pick last October, is a diversified water equipment and services company. The stock is down 10% this year as revenue and profit forecasts have fallen. Xylem shares are off their October high of about $154, trading around $123 on Monday.
Analysts expect Xylem to earn $1.08 a share on revenue of $2.1 billion, according to consensus estimates.
Wall Street remains upbeat on the stock with an average target of $156.
RBC analyst Dean Dray, one of the bulls, sees the shares at $157. He likes Xylem's diverse customer base, including semiconductors, pharmaceuticals, hospitals, food and beverage companies, utilities and data centers. More than half its revenue comes from outside the U.S.
"There's an element of cyclicality in the business," says Dray, noting that Xylem could see some of the issues that Badger experienced from utility orders. "There's a chance it could be impacting Xylem, but it's a much smaller part of the revenues."
Robert W. Baird analyst Michael Halloran also rates the stock a Buy, though he warns that investors need to be patient. "Xylem's a great stock over a two-plus year horizon," he says. "You just need orders to start moving. Starting three, six months from now is when it will really start working," he said.
Halloran expects continued sluggishness around utility orders but sees it as temporary. He pegs the stock at $161. "I think full-year guidance looks acceptable," he said.
Some analysts are on the fence with the stock. UBS's Josh Spector downgraded the stock to Neutral after Badger earnings, based on concerns that near-term project delays will impact growth for 2026. He expects Xylem to have higher organic growth in the mid-single-digit percentage points in 2027, up from his estimate of 2.1% organic growth in 2026.
Dray expects water stocks to generate steady long-term gains. Droughts in the U.S. are likely to increase interest in companies that help with conservation and recycling water, he says. Globally, a growing population is increasing demand for clean water, desalination plants, and infrastructure.
"[Water investing] has long-term defensive appeal in that regardless of what's going on geopolitically or economically, demand for clean water and wastewater treatment is always rock steady," he says.
Another stock to consider is Advanced Drainage Systems, a water management company that has benefited from the transition from concrete and steel to plastic piping.
Halloran has a Buy on it with a target of $205. The stock traded around $153 on Monday, up 6% year to date.
He points out that Advanced Drainage generates operating margins around 30%, based on earnings before interest, taxes, depreciation, and amortization or Ebitda. The company's plastic pipes business is sensitive to oil prices and investors have concerns about its construction markets. But the firm is the only national player in its field and one of the largest buyers of recycled plastic.
Watts Water Technologies, an equipment supplier for things like water quality and flow control, has generated strong results. The company also has a large opportunity with data centers, providing valves and other products to manage cooling.
Data centers are 3% to 4% of sales, but could grow by 30% to 35% over five years, says KeyBanc analyst Jeffrey Hammond. The company has been "a standout" in managing tariff-related inflation and getting better margins on prices, he adds.
Watts stock is up 46% over the past year and 9% year to date, but is off from its February highs around $232. Shares traded around $304 on Monday. Hammond has a Buy on it with a $360 target.
Some exchange-traded funds focus on water and have been performing well. The Invesco S&P Global Water Fund and Global X Clean Water ETF are both up around 5% this year.
Xylem, Advanced Drainage and Watts are among their largest positions. The top holding of Global X fund is Ferguson Enterprises, a stock up 56% over the past year. Both ETFs also hold American Water Works, down 8% in that period.
Water may not be the most exciting sector. In an increasingly parched world, however, the stocks could work out swimmingly.
Write to editors@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 27, 2026 17:51 ET (21:51 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments