Have Water Stocks Hit a Bottom?

Wedbush analyst David Rose said that there is a "sense" that water stocks are "approaching the bottom in earnings." However, Rose cautioned that there are still headwinds. In total, there is a "need to replenish this backlog soon in order to drive growth into next year," he said.

Rose pointed to Rexnord Corp RXN and Calgon Carbon Corporation CCC as potential bottoms. Rexnord has dropped 24 percent year to date, with more than 7 percent of that decline coming in the past month. Calgon has performed slightly better on the year, falling 22.5 percent after a 12.5 percent decline in the past month. Wedbush, however, did warn that Calgon could see "increased pricing pressure" given a recent Supreme Court ruling.

On the positive side, Wedbush suggested that there is an improving climate around the municipal water sector. Rose rated Muller Water Products, Inc. MWA, Tetra Tech, Inc. TTEK and Xylem Inc XYL as Overweight. The firm said it is impressed by Muller, Tetra and Xylem's ability to generate cash, while there are also other "tailwinds" in the sector.

"There are some opportunities for patient value investors," the note concluded, namely in Flowserve Corp FLS and SPX Corporation SPW. This follows commentary from these companies that there are "signs of stabilization" from more consistent oil prices and flat orders. Rose also rated Flowserve and SPX Corporation as Overweight.