Market Vectors Environmental Services ETF: Investing in Garbage

Back in colonial times, the trash haulers were viewed as vile, disgusting human beings. By default they were charter members of the lowest class of society.

Not anymore. High up on the list of wealthy people in any given area is the local landfill owner.

A friend of mine, along with his family, owns and operates one of the largest landfills in my area. He smiles and says, "It's about as a recession-proof business as you can find. Here in the United States, people and businesses generate 750,000 tons of garbage every day. The trucks never stop coming."

Many years ago, before recycling became popular, the company started a recycling operation as a natural extension of the landfill business. It's doing very well. When any given recyclable commodity goes up, the company's a seller. The rest of the time, it just stores the copper, steel, aluminum and a dozen other scrap metals and plastics in huge mounds.

Now the company plans to "drill the pile" and tap into the vast source of methane gas generated when garbage decomposes. That solves a big problem with landfills: smell.

Some of the power produced will be used at the site and the excess will be sold off to the local power company.

Plans to expand the landfill are currently under way. And even though the company gives back to the community in many ways besides paying taxes, the expansion has been met with mixed feelings by local residents. It's the old "NIMBY" (not in MY backyard) argument.

So what's the best way to play the garbage game?

Let's take a look at a couple choices:

Not surprisingly, there's a "trash" ETF, called Market Vectors Environmental Services ETF (AMEX: EVX) that seeks to replicate the performance of the AMEX Environmental Services Index.

The 24 companies in the AMEX ESI include those involved in the management, removal and storage of consumer and industrial waste (trash haulers and landfill operators), and related environmental service companies.

Three of the top four holdings of EVX are trash haulers and landfill operators: Waste Management, Inc. (NYSE: WMI), Republic Services, Inc. (NYSE: RSG) and Allied Waste Industries (NYSE: AW). Veolia Environnement (NYSE: VE), an international environmental services company, rounds out the top four.

EVX shares - cut in half by the recent market rout - have recently rebounded to the $35 range, but still trade well below the 52-week high of $58.54 reached this past June. EVX sports a yield of 1.5% and is a great buy at current levels.

Clean Harbors (Nasdaq: CLHB) - a vertically integrated environmental services and hazardous waste treatment company - is included in the EVX ETF, but merits special mention.

Handling the hazardous side of waste disposal and management is Clean Harbors' special focus, and business is booming. Revenues are up 55% in the last three years, and earnings are up an even more impressive 81%.

Clean Harbors is the leading provider of environmental services in North America, with 45,000 customers located in the United States, Mexico, Puerto Rico and Canada. The company's customer list includes 325 of the Fortune 500 companies, and it services them from over 100 locations.

Treating and disposing all this hazardous waste requires extremely specialized facilities, and Clean Harbors has that covered, too. The company owns and operates six hazardous waste incineration facilities, six wastewater treatment plants, nine landfills, six PCB (polychlorinated biphenols) management facilities, two waste oil reprocessing and recycling facilities, and 20 TSDFs (transportation, storage and disposal facilities).

The second quarter of 2008, ending in June, was a record for the company. CEO Alan S. McKim had said,

Clean Harbors delivered another record quarter in Q2, with double-digit increases in both revenue and profitability. Solid growth across nearly all of our operations enabled us to generate revenues of $265.3 million.

Currently, shares are trading midway between their 52-week high/low, and represent an excellent buy at current levels.

I expect that the third quarter of 2008 will be another good one for the company, perhaps another record. We won't have to wait long. It's expected that earnings will be announced on November 3, 2008.

In summary, both Market Vectors Environmental Services ETF and Clean Harbors represent two great ways to add some recession resistance to your portfolio while you wait for the global economy to slowly recover.

Disclosure: I have no position in any of the equities mentioned