With the recent banking sector headwinds spilling over into other segments of the economy, investors may want to seek opportunities with the best water utility stocks to buy. No, utility firms don’t represent exciting investment sectors but that’s also the point. In some ways, their boring nature centers on their generally predictable businesses. As well, utilities command natural monopolies due to the extreme barriers to entry.

Fundamentally, the best water utility stocks to buy also carry a distinct advantage: the underlying resource is the planet’s most precious. While most of the Earth is covered with water, only a small portion of it is drinkable. Further, as geopolitical tensions almost invariably rise, competition will spark for securing necessary supplies. Therefore, it just makes sense to consider these critical enterprises.

CWT California Water Service $56.81
SJW SJW Group $75.70
VEOEF Veolia Environment $28.67
AWK American Water Works $141.81
MSEX Middlesex Water $76.21
XYL Xylem $94.73
WTRG Essential Utilities $42.56

California Water Service (CWT)

A photo of water being poured into a glass that's sitting on a table.

Source: HQuality/ShutterStock.com

Headquartered in San Jose, California, California Water Service (NYSE:CWT) provides drinking water and wastewater services. Per its public profile, it’s the third-largest investor-owned publicly traded water utility in the U.S. California Water serves two million people through subsidiaries in Hawaii, New Mexico, Washington, and its home state. Currently, CWT trades at a relative discount, shedding nearly 7% since the Jan. opener.

As a utility firm, it predictably doesn’t offer standout financials. That said, on an operational level, California Water’s three-year free cash flow (FCF) growth rate pings at 10.8%, outpacing 61.29% of the industry. Also, its book growth rate during the same period is 14.4%, above 82.52% of the industry. Currently, the company carries a forward yield of 1.81%. Notably, CWT commands 56 years of consecutive annual dividend increases.

Finally, Wall Street analysts peg CWT as a consensus moderate buy. Their average price target reached $60.50, implying over 5% upside potential. Presenting a well-balanced profile, CWT ranks among the best water utility stocks to buy.

SJW Group (SJW)

A photo of small bubbles in a container of water.

Source: khak/ShutterStock.com

Also based in San Jose, SJW Group (NYSE:SJW) is a water utility processing, distribution, wholesale and retail company. Per its corporate profile, SJW serves 228,000 connections that reach over one million residents in regions of California. It also provides services for 60,000 people in Texas. So far this year, SJW dipped nearly 7%. However, in the trailing year, SJW gained approximately 14% of its equity value.

Financially, SJW makes a decent case for the best water utility stocks to buy. Operationally, the company’s three-year revenue growth rate stands at 11.5%, above 69% of the industry. Also, its EBITDA growth rate during the same period is 20.5%, outpacing 82.2% of its rivals. In terms of profitability, the company’s net margin is 11.83%, beating out 64% of sector players. At the present juncture, SJW carries a forward yield of 1.98%. Also, it features 56 years of consecutive dividend increases. Lastly, covering analysts peg SJW as a consensus hold. However, their average price target is $84.50, implying over 10% upside potential.

Veolia Environment (VEOEF)

a picture of water

Source: Shutterstock

A French transnational company, Veolia Environment (OTCMKTS:VEOEF) is a utility firm covering three main service areas: water management, waste management, and energy services. Interestingly, Veolia also specializes in desalination, or the process of converting ocean water into drinking (potable) water. Since the beginning of the year, VEOEF gained over 8% of its equity value. However, it’s undervalued in the trailing year, down 13% below parity.

Despite the red ink, adventurous investors of the best water utility stocks to buy should take a peek at Veolia. Regarding its financials, the company features a three-year book growth rate of 17.9%, above 70% of its peers. As well, in the past 10-year period, it posted profits in nine of them. Perhaps most attractively for prospective buyers, the market prices VEOEF at a forward multiple of 15.49. As a discount to earnings, Veolia ranks better than 60.87% of the competition. Right now, covering analysts peg VEOEF as a consensus moderate buy. Their average price target stands at $31.99, implying almost 12% upside potential.

American Water Works (AWK)

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A public utility firm, American Water Works (NYSE:AWK) through its subsidiaries provides water and wastewater services in the U.S. Per its company profile, American Water serves approximately 1,700 communities in 14 states. This equates to about 14 million people via 3.4 million customer connections. Despite its relevancies, since the start of the year, AWK dropped over 7% in equity value.

Still, it’s worth taking a look at one of the underrated examples of the best water utility stocks to buy. Operationally, the company features a three-year book growth rate of 7.7%, outpacing 65% of its peers. In terms of earnings, the public utility carries a net margin of 21.62%. This stat boxes out 87.82% of sector peers. As well, it enjoys 10 years of profitability over the past decade. For passive income, American Water offers a forward yield of 1.84%. Notably, it features 13 years of consecutive dividend increases. Turning to Wall Street, analysts peg AWK as a consensus hold. However, their average price target stands at $163, implying over 14% upside potential.

Middlesex Water (MSEX)

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Based in New Jersey, Middlesex Water (NASDAQ:MSEX) is a water utility with a long history, being first incorporated in 1897. Presently, it’s one of the middle-of-the-road enterprises among the best water utility stocks to buy, with a market capitalization of $1.34 billion. Since the Jan. opener, MSEX dipped 4%. In the trailing year, shares fell 25%, reflecting a higher-risk profile.

Nevertheless, MSEX may offer a higher reward potential in exchange for that risk. In addition, its financials aren’t that bad, at least compared to other utility firms. For example, Middlesex’s three-year EBITDA growth rate pings at 12.4%, above 69.79% of competitors. Also, its FCF growth rate during the same period is 18.7%, above nearly 71% of sector players. Plus, the company enjoys strong profitability with a net margin of 26.12%. Unfortunately, its forward yield doesn’t quite reflect that at 1.63%. Still, it features 27 years of consecutive dividend increases. Finally, Robert W. Baird’s Ben Kallo pegs MSEX as a buy. The experts anticipate shares hitting $88, implying almost 15% upside potential.

Xylem (XYL)

Lots of water bottles. Bottles with blue caps.

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Based in Washington, D.C., Xylem (NYSE:XYL) is a water technology provider. It serves the public utility, residential, commercial, agricultural, and industrial sectors. Further, Xylem does business in more than 150 countries. Since the start of the new year, XYL declined by over 12% in market value. However, in the past 365 days, it gained more than 10%. Moving forward, it can possibly rise higher.

According to Gurufocus.com’s proprietary calculations for fair market value (FMV), XYL rates as modestly undervalued. Largely, the company’s greatest strengths arguably center on its profitability metrics. For instance, its operating margin is 11.79% in the trailing year, above 73.56% of the competition. Further, its return on equity is 10.88%, outpacing 64.31% of its peers. Presently, Xylem carries a forward yield of 1.36%. While it’s not the most generous rate of passive income, its payout ratio sits at 36.72%.

Lastly, covering analysts peg XYL as a consensus moderate buy. Further, their average price target stands at $118.43, implying nearly 22% upside potential. Therefore, for sheer capital returns potential, it’s one of the best water utility stocks to buy.

Essential Utilities (WTRG)

Flooded quarry for limestone mining. Turquoise water. White beaches. Water stocks.

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A utility firm with stakes in several states predominantly in the Midwest and South, Essential Utilities (NYSE:WTRG) provides drinking water and wastewater treatment infrastructure and services. Although one of the more popular ideas among the best water utility stocks to buy, Essential also represents a volatile trade. Since the Jan. opener, WTRG slipped almost 11%. And in the trailing year, it’s down nearly 10%.

Still, for the adventurous type, WTRG could be intriguing. Per Gurufocus.com’s FMV calculations, WTRG rates as modestly undervalued. Objectively, the company benefits from strong growth and profitability. Its three-year revenue growth rate stands at 28.3%, outpacing nearly 94% of the competition. For net margin, its metric of 20.33% beats out nearly 86% of sector peers. Conspicuously, Essential provides relatively solid passive income with a forward yield of 2.66%. Moreover, it commands 31 years of consecutive dividend increases. Looking to the Street, covering analysts peg WTRG as a unanimous strong buy. Their average price target comes in at $54, implying over 25% upside potential.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.