In 2025, water technology stocks underperformed relative to the broader market, recording a modest 3% gain against the S&P 500's 16% increase. Despite this, Deutsche Bank analysts emphasize that this subdued performance may offer a unique opportunity for investors looking ahead to 2026. They characterize water technology stocks as a "chicken cyclical" sector, combining elements of cyclical recovery with steady secular growth potential.
The analysis from Deutsche Bank points to the sector's ability to rebound, supported by robust balance sheets and companies' capacity to adapt under the current administrative environment. These factors form the foundation of the bank’s bullish stance toward select water technology equities for the coming year.
Badger Meter (BMI)
Badger Meter's stock underperformed in 2025 as investors favored more volatile industrial sectors such as Machinery, which gained 15% amid expectations of a short-cycle recovery in 2026. Despite this, Deutsche Bank maintains that BMI holds a strong market position. The bank observes signs of stabilization in Purchasing Managers' Indexes (PMIs), noting that while the downturn in the sector has been mild, a rapid recovery may not unfold as some anticipate.
Additionally, Badger Meter announced upcoming executive changes effective January 2026, promoting its Chief Financial Officer to Executive Vice President. This shift in leadership drew fresh analyst coverage: Jefferies initiated a Buy rating, whereas Barclays issued an Underweight recommendation.
Pentair (PNR)
Deutsche Bank identifies Pentair as one of its preferred picks for 2026, highlighting its appealing valuation following a relatively weak 2025 performance. The firm forecasts resilient double-digit earnings growth and underscores a positive outlook heading into the company's fourth-quarter 2025 earnings announcement.
Pentair also declared an 8% increase in its dividend, marking what will be its 50th consecutive year of annual dividend growth in 2026. Analyst reaction has been mixed, with downgrades from TD Cowen and Barclays contrasted by Jefferies upgrading the stock to a Buy rating.
Watts Water Technologies (WTS)
Watts Water Technologies features among Deutsche Bank's preferred water technology stocks but comes with a note of caution regarding near-term earnings in Q4 2025. Analysts recommend avoiding WTS in the immediate term despite its longer-term inclusion in the sector’s leading companies.
Recently, Watts completed the acquisition of Saudi Cast, a drainage solution manufacturer with annual sales around $20 million. Furthermore, KeyBanc upgraded Watts' stock to Overweight based on an optimistic forecast for 2026.
Xylem (XYL)
Xylem stands out as another favorite of Deutsche Bank alongside Pentair, receiving a positive projection for its upcoming Q4 2025 earnings. The bank expresses confidence in Xylem's capacity to benefit from both recovery dynamics and enduring secular trends in water technology.
The company delivered strong financial results in the third quarter of 2025, surpassing analyst estimates in both revenue and earnings per share. Additionally, S&P Global Ratings upgraded its outlook on Xylem from stable to positive, citing robust credit metrics.
Zurn Elkay Water Solutions (ZWS)
Zurn Elkay Water Solutions ranks as Deutsche Bank's third top choice in the water technology sector for 2026, trailing only Pentair and Xylem. It is positioned to benefit from the sector's general strength in balance sheets and the potential for increased capital allocation activities.
Reporting third-quarter 2025 results that surpassed market expectations, Zurn Elkay raised its full-year guidance. Following these results, Stifel increased its price target on the company.
Veralto
While not detailed among the top five, Veralto remains under Deutsche Bank's coverage as a noteworthy stock in the water technology field. The company recently announced plans to acquire In-Situ, an environmental water monitoring firm, for $435 million. It also authorized a substantial $750 million share repurchase program, with the board approving an 18% increase in its quarterly cash dividend.
Looking ahead, Deutsche Bank anticipates that 2026 will feature enhanced capital allocation initiatives across water technology companies, as they leverage strong financial positions to navigate the existing market challenges.
These takeaways come amid an investment landscape in which water technology stocks had relatively modest returns, but where the underlying fundamentals suggest recovery and growth opportunities as companies manage transitions and capitalize on their balance sheets. Investors should observe ongoing earnings announcements and leadership developments closely as indicators of how this sector might perform in the year ahead.