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Five Canadian water stocks you should know

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Freshwater is becoming increasingly valuable and scarce due to a combination of factors, presenting significant challenges on a global scale.

One of the primary reasons for the growing scarcity of freshwater is the rapid growth of the world’s population. As more people inhabit the planet, the demand for freshwater for various purposes, including drinking, sanitation, agriculture, and industry, increases significantly. The expanding population leads to greater pressure on existing water resources.

Urbanization is another contributing factor to the scarcity of freshwater. As cities grow and populations concentrate in urban areas, the demand for water escalates. Urban centers require substantial amounts of water for domestic use, sanitation, and industrial activities, putting strain on local water sources.

Climate change is a critical driver of freshwater scarcity. Altered precipitation patterns result in more frequent and severe droughts in certain regions and intense rainfall and flooding in others. These climate-induced changes disrupt the natural replenishment of freshwater sources, further exacerbating water scarcity.

The depletion of groundwater is a major concern. Over-extraction of groundwater from aquifers for agricultural irrigation and other purposes can lead to groundwater depletion, making it difficult for aquifers to recharge naturally. Consequently, groundwater levels are declining in many areas, diminishing this essential water source.

Water pollution and contamination pose significant challenges to freshwater availability. Agricultural runoff, industrial discharges, and untreated sewage contribute to the contamination of freshwater sources, making them unsuitable for use. Contaminated water poses health risks and reduces the amount of usable freshwater.

Inadequate water management practices also contribute to the scarcity of freshwater. Inefficient irrigation methods, water wastage, and a lack of water conservation efforts further deplete and waste available water resources.

Transboundary water conflicts are common as many freshwater sources, such as rivers and lakes, span multiple countries. These shared water resources can lead to disputes over water usage and allocation among neighboring nations.

Ecosystem degradation is another factor affecting water availability and quality. The decline of aquatic ecosystems, such as wetlands and rivers, impacts the balance of water and the natural filtration of pollutants.

As freshwater becomes scarcer, its value increases, leading to economic, social, and environmental impacts. Competition for water resources can lead to conflicts between different sectors and even between nations. In some regions, water stress and scarcity are causing displacement of populations and triggering migration to areas with better access to water.

Addressing the growing scarcity of freshwater requires a multifaceted approach that includes sustainable water management, conservation efforts, investment in water infrastructure, and improved agricultural practices. Additionally, policies that encourage responsible water use, integrated water resource management, and international cooperation on water-sharing agreements are essential to tackle this global challenge.

While the issues around water scarcity are real, there is no doubt that fortunes will be made trying to solve these problems. These five Canadian stocks may be benefactors of a multi-generational trend.

H2O Innovation (TSX:HEO)

Industrial Alliance Capital Markets analyst Naji Baydoun argues there are plenty of reasons to be like H2O Innovation , and in a research update to clients on June 29 reiterated a “Strong Buy” rating on the stock, saying double-digit organic growth is in the cards for the company.

Québec-based H2O Innovation is a diversified water infrastructure and tech company with integrated water treatment solutions for customers in Canada, the US and internationally. H2O has business in Water Technologies & Services, Specialty Products and Operation & Maintenance Services.

The stock tumbled over the first half of 2022, going from about $2.70 to a low of $1.80 by June of last year. But it’s been pretty much all upwards from there, and HEO has hit above $3.00 and stayed there this summer making for a year-to-date return of about 22 per cent.

Baydoun sees the stock heading higher and has maintained in his report a 12-month target price of $4.00 per share, which at press time represented a projected return of 28 per cent.

Primo Water (TSX:PRMW)

Primo Water Corporation, formerly known as Cott Corporation, is a water company based in the United States and Canada. The company offers a range of products and services, including multi-gallon bottled water, water dispensers, self-service refill water machines, and water filtration appliances. Headquartered in Tampa, Florida, Primo Water serves both residential and commercial customers across the United States, Canada, Europe, and Israel.

According to Tipranks, eight analysts currently cover the stock, with the average sentiment being “Modest Buy”.

The history of the company dates back to 1923 when it was founded as Cott Beverage Corporation by Solomon Cott, a Polish immigrant, along with his sons Harry, Barney, Jack, and Albert in Port Chester, New York. The company’s expansion continued in later years, and in 1952, Harry Pencer from Montreal, Quebec, began importing Cott sodas into Canada. Eventually, the Canadian rights to the Cott label were acquired by Pencer, leading to the establishment of Cott Beverages (Canada) Ltd. in 1955.

Over the years, Cott Corporation underwent several name changes and acquisitions. In 2000, it acquired Concord Beverages, which included the Vintage brand seltzer water. Later, in 2010, the company acquired Cliffstar Corporation, a supplier of juice beverages in the United States.

Starting in 2014, Cott shifted its focus towards the bottled water industry through a series of acquisitions. It acquired Aimia Foods (Holdings) Limited in the United Kingdom and DSS Group, Inc. in the United States. Additionally, it expanded its presence in Canada and Europe by acquiring Aquaterra and Eden Springs, respectively.

In 2018, Cott sold its carbonated soft drinks and juice bottling businesses to Refresco for $1.25 billion. The company continued to make strategic moves, including the acquisition of Mountain Valley Spring Company and the sale of its soft drink concentrate production facility and RCI International division to Refresco.

Further changes occurred in 2020 when Cott sold S&D Coffee and Tea to Westrock Coffee Company, LLC for $405 million and completed its purchase of Primo Water Corporation for $775 million. As part of this purchase agreement, Cott rebranded itself as Primo Water Corporation and changed its ticker symbols on the stock exchanges.

In 2022, Primo Water Corporation acquired Highland Mountain Water, a Georgia-based company, expanding its portfolio further.

BluMetric Environmental (TSXV:BLM)

Ottawa-based BluMetric Environmental designs and builds wastewater treatment systems. On May 25, the company posted its most recent financial  results, posting a topline of $17.9 million over the most recent six month period.

In the press release, the company noted that it had signed a three-year, $11.7 million contract with Rheinmetall Canada to develop and self-contained water purification systems as part of a contract that was awarded by the Canadian Armed Forces.

Current Water Technologies (TSXV:WATR)

Guelph-based Current Water Technologies looks to handle the big problems in the water world; desalination and getting water clean. The company, which describes itself as “an emerging technology leader in the management of industrial and municipal wastewaters and drinking water resources” has signed a number of recent contracts, including an agreement with Singapore-Based Separtis Technologies Global Pte Ltd to market the former’s electrochemical water treatment and green hydrogen and lithium recovery technologies.

Algonquin Power and Utilities (TSX:AQN)

Beleaguered Canadian utility and renewable energy play Algonquin Power and Utilities (Algonquin Power and Utilities Stock Quote, Charts, News, Analysts, Financials TSX:AQN) has been a big disappointment for investors over the past half-year, and a recent dividend cut by management has heaped more worry on the company and stock going forward.

But portfolio manager Chris Blumas of Raymond James Investment Counsel is looking on the bright side with Algonquin, having just named it one of his three top picks for the next 12 months. Blumas says a number of factors have contributed to the downturn for AQN, which is off by over 40 per cent since September of last year and is now trading at around $10 per share, a level not seen since 2015.

Incorporated in 1988 and headquartered in Oakville, Algonquin Power and Utilities owns and operates a portfolio of regulated and non-regulated generation, distribution and transmission utility assets in Canada, the United States, Chile and Bermuda and generates and sells electrical energy through non-regulated renewable and clean energy power generation facilities.

More recently, iA Capital Markets analyst Naji Baydoun provided clients with an update on the company and reiterated a “Speculative Buy” rating on the stock.

Baydoun believes that despite the companies lingering issues there is value to be unlocked in its portfolio of assets.

“Notwithstanding the fundamental value of the Company’s asset base, we see the possibility for Corvex to seek to apply its utility playbook to AQN; ultimately, the outcome of increased activist investor interest in the story should bode well for the share price,” Baydoun wrote.

“With the Kentucky transaction out of the picture, we see the potential for additional strategic developments to emerge as new players get involved with the AQN story, potentially helping to unlock shareholder value (e.g., activist shareholders or strategic investors),” he said.

With his “Speculative Buy” rating, Baydoun maintained a $13.00 target price on AQN, representing at press time a projected one-year return including distribution of 18.7 per cent.

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