Water is one of the core facilitators of life on this planet, and thankfully, there is enough of it that, in most cases, we don’t have to think about how much we depend on water. We rely on it directly, our food sources completely depend on water, and it’s important for many of the natural systems that make our planet habitable.
As a freely available human right, it’s easy to overlook water’s value as a commodity, especially in a country like Canada, where fresh water is so readily available. But even here in Canada, water is the focus of many small and large businesses and a handful of publicly traded companies.
Considering how important it is and how relevant it will remain to humanity no matter how far we look into the future, investing in water can be a powerful long-term strategy.
There are two Canadian water stocks that may make a solid addition to your portfolio.
H2O Innovation (TSX:HEO) is involved in many water treatment businesses. Even though most of the country drinks tap water, the bottled water industry and the industry for new filtration technologies is growing, giving H2O Innovation a strong market to work with. The company also offers wastewater treatment services, which is a far larger and rapidly growing market.
The technology stack of the company is quite impressive, and its trademarked technologies include nano-filtration, reverse osmosis filtration, micro-filtration, sludge cleaners, and wastewater treatment systems. It also offers water monitoring and reclaiming solutions, which have several potential applications in agriculture.
The stock has been on the rise for over a year and has grown over 34% in the last 12 months. At this pace, the stock has the potential to double your capital in three years. It’s currently quite overvalued, but the finances are healthy.
While water is one of the utilities the company offers, it’s not what Algonquin Power and Utilities (TSX:AQN) is primarily known for. Its forte is electrical power generation and transmission, and it recently went through a rough phase that involved a vicious dividend cut. The company lost over half of its value in less than one-and-a-half years, which pushed it out of the set of large-cap stocks.
The company’s troubles are far from over. It still carries a massive amount of debt. The financials are healthy, but debt management may require the company to take drastic actions. But if the company manages to restore confidence among the investors, it may experience a growth spurt similar to what it experienced in its early days, when it was one of the best growth stocks in the utility market segment.
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The two water stocks offer you exposure to the underlying commodity in two different ways, and both of them can be profitable in the long run. H2O is well positioned to emerge as a much larger player once its patented technologies gain more traction, while Algonquin has to generate confidence among investors that its fundamental strengths are enough to carry it through the current weak phase.