3 Water Stocks to Buy to Invest Like Michael Burry

Video how to invest in water like michael burry

In 2015, the release of the film The Big Short turned Michael Burry into a celebrity. The investor’s prediction of the 2008 financial collapse capture the attention of audiences across the United States. Adapted from Michael Lewis’ 2010 book, the film traced Burry’s journey as he recognized that the signs of the subprime bubble’s impending bust. It ended with an ominous message that fascinated the viewers who noticed it; “Michael Burry is focusing all of his trading on one commodity: Water.” That likely struck some as an odd area for the famed investor to be so heavily focused on. But if anyone has a proven track record of well-calculated decisions, its Burry. That line has compelled some investors to consider the best water stocks to buy.

What did Burry actually say about his water trade? He discussed the topic with Jessica Pressler of New York Magazine in 2015. Burry revealed that he had been looking at water investments since 2000, calling the commodity “political, and litigious.” He emphasized, though, that he had never been focused on water rights or transportation:

What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water that is least contentious, and ultimately it can be profitable, which will ensure that this redistribution is sustainable.

If that is true, investing in water makes sense for both good and bad times. Burry hasn’t discussed what he considers to be the best water stocks to buy but other experts have offered their picks. Let’s take a look at the names that investors seeking to emulate Burry’s example should be looking at.

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AWK American Water Works $151.39 WTRG Essential Utilities $49.76 XYL Xylem $85.58

American Water Works (AWK)

The only thing awkward about this company is the trading symbol. American Water Works (NYSE:AWK) is a leader in the consumer staples sector with a demonstrated history of slow, steady growth. “Despite operating in a low growth industry, American Water Works has managed double-digit annualized compounded earnings growth for many years now,” reports InvestorPlace contributor Ian Bezek. This makes it a great play for investors looking for dividend stocks with long-term potential.

Founded in 1886, the company has had plenty of time to grow and gain a market share. Over a hundred years later, it has done exactly that, offering services to 14 million Americans across ten states. Demand for its primary functions, providing both drinking and wastewater services, will only increase as the U.S. population grows and environmental concerns rise. Companies that offer a necessity service are often best positioned to withstand both inflation and Federal Reserve rate hikes. And while AWK is currently trading at a fairly high price, it is still down from where it was when 2022 began. That said, its current trajectory suggests that it will keep rising within the coming months, making it a stock to buy now.

Essential Utilities (WTRG)

Investors may remember this company as Aqua America. It rebranded under a new name in early 2020. While this company also deals in natural gas, a fellow slow-growth sector, it has earned a place among the best water stocks to buy. Replacing water infrastructure has been a unique booster for Essential Utilities (NYSE:WTRG). “The way things have set up in the United States, there is a ton of old water systems in place that — like in Flint, Michigan — can lead to terrible problems when neglected,” Bezek notes. “Water utilities such as Essential can earn a favorable return on investment for upgrading and modernizing these older water systems.” Essential’s status as a dividend aristocrat reaffirms that this assessment is correct.

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As a company in the same space, WTRG offers investors all the same reasons to love it as its lager cap peer AWK. But as it currently trades at less than a third of its per-share price, investors may see it as a better play. Additionally, WTRG has displayed fairly steady growth over the past six months, rising 5% while AWK fell by 4%. The smaller company has proven it can provide dependable returns through both bull and bear markets. Through all economic climates, one constant is that consumers still make their water bill payments.

Xylem (XYL)

Essential Utilities and American Water Works are providing water services close to home. But across the globe, a water crisis is looming. The UN predicts that “By 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity, and two-thirds of the world’s population could be living under water stressed conditions.” Thankfully, Xylem (NYSE:XYL) is working on a solution. The innovative company is dedicated to helping solve the world’s water problems through technological advancement. According to the Newday Ocean Health ETF (NYSEARCA:AHOY), it has been able to “prevent over 7 billion cubic meters of polluted water from flooding communities or entering local waterways.”

Bezek touts Xylen for its dynamic business model and wide implications for the industry. “A utility or industrial company can call Xylem up and get everything from testing to storage to efficiency solutions,” he notes. “This allows Xylem a great deal of cross-selling and efficiency in its marketing spend.” And as fellow InvestorPlace contributor Max Isaacman reports, this model has yielded excellent financial results, namely a “trailing price/earnings multiple at about 34x.” While XYL has been on the rise since June, it is still down 14% over the past six months. That makes this an ideal time to buy in if you want to invest like Michael Burry.

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On the date of publication, Samuel O’Brient did not have (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.