By Lucas Scholhamer
Of all the jobs lost during the recession, taking out the trash wasn’t one of them. Not surprisingly, most Americans actually continued to throw things away regardless of their employment status. Businesses didn’t cut back either. And unlike your favorite frozen yogurt restaurant, waste management services doesn’t charge by the weight — a fixed rate for pickup means that they earn the same amount per collection, regardless of the quantity of trash in the can. The steady demand helped waste management and sanitation companies weather the economic downfall, especially those that have a dependency on housing starts, and has more recently assisted in their recovery. With this in mind, Investment Underground looks at seven stocks that could potentially turn America’s trash into your treasure:
Stericycle Inc. (SRCL) has come a long way since its founding in 1993. Through acquisitions, the medical waste disposal powerhouse has expanded internationally and become a major player in the reverse pharmaceutical industry. SRCL stock has a high barrier to entry, with shares priced at $90.43 (up 0.09%) and a P/E ratio of 37.9. The Justice Department recently ruled that, due to its dominance of the industry in the New York Metropolitan area, SRCL will have to divest one of its assets in order to complete its $245 million acquisition of Healthcare Waste Solutions, Inc. With a YTD low of $54.49, SRCL stock has appreciated by 66% in the last year alone. With the aging baby-boomer population and Obama-care, medical spending will continue to increase, and there will be no shortage of biomedical waste. Due to SRCL’s potential for continued growth, this stock could be a valuable addition to your portfolio.
Keeping restaurants clean since 1923, Ecolab Inc. (ECL) develops, manufactures, and sells cleaning and sanitizing products for the food service industry. Share values dropped 1.01% to $50.78 upon closing Tuesday. With a trailing P/E of 22.77 and a forward P/E of 17.0, ECL shares have fallen $1.23 in the last week, and are showing support around the $47.40 range. The company has recovered nicely since the recession, cementing its place as a leader in its industry, and its razor-and-blade business model suggests repeat customers abound. Bill Gates is a shareholder as we wrote about here. Oh, and everybody likes a dividend: ECL’s dividend yield is 1.40%. However, if we do see additional economic dips, share values may drop further as increasingly tight-fisted Americans shy away from eating out.
Republic Services Inc. (RSG) is a major commercial, industrial, municipal and residential waste management, serving 40 states across the U.S. Stocks traded up to $30.07 upon closing Tuesday. RSG has a trailing P/E of 22.78, a forward P/E of 13.4, and a 2.7% dividend yield. Share values hit $31.39 in mid January, and have been trying to recover from a $28.56 low in mid March. However, the company is still growing into its increased landfill capacity from acquiring Allied Waste in June 2008, and it also bought out Green Tech Transfer & Recycling in late January this year. With its potential for growth, this may be a valuable opportunity to catch RSG before an upswing. Like ECL, Bill Gates is a shareholder, and we also wrote about RSG here.
Waste Management Inc. (WM), America’s largest collection, disposal, and recycling provider, has climbed its way back up to pre-recession levels, partially in part to its increased recycling and waste-to-energy efforts. The unsteady housing market and resulting lack of construction has decreased WM’s waste disposal volume recently, and stock dropped 0.24% to $37.67 on Monday. However, the company’s strong cash flow and 3.6% dividend yield are attractive, and with a trailing P/E of 19.03 and a forward P/E of 14.2, there is reason for optimism. Additionally, Tuesday morning, WM announced the opening of a $20 million recycling facility in Philadelphia capable of processing over 20,000 tons of recyclables per month. An unwavering customer base of households and corporations nationwide continues to pay fixed rates for weekly pickup, so that portion of the business should remain stable. This industry leader has grown steadily and could be a valuable addition for investors with long-term aspirations.
Casella Waste Systems Inc. (CWST), a solid waste removal company focused on turning traditional waste into a sustainable resource, has struggled recently, as shares dropped to $6.47 Tuesday, down from their YTD high of $8.19 in early February. The company recently announced the sale of $130.4 million of select non-integrated recycling assets and is expecting net cash proceeds of $117.4 million from the deal. Moreover, CWST announced an annual earnings growth of 8% over the last 5 years in its 2011 Q1 operating reports, and bearish investors should take note of the affordability of this stock. However, fickle Americans tend to be environmentally friendly so long as it does not become a financial inconvenience. If the economy continues its recovery, CWST appears to be in a good position, and divesting a significant portion of its vulnerable recycling assets may contribute to the stability of the company as a whole.
Founded in 1997, Waste Connections Inc. (WCN) provides solid waste collection, transfer, disposal, and recycling services for 2 million customers in the southern and western U.S. Share values have continued to drop this week, closing at $29.65 Tuesday (down 0.90%) and continuing to fall off its $30.58 YTD high. However, WCN shares have appreciated 20% over the last year, and this week’s moderate decline does not give serious reason to worry. With a trailing P/E of 25.56, a forward P/E of just 17.2, and a 1.0% dividend yield WCN stock is growing even more attractive. Additionally, WCN announced the acquisition of Hudson Valley Waste Holding Inc. earlier this month, and appears poised for great future growth. Investors looking for an expanding company to add to their portfolio should consider this stock.
And last, but definitely not least, is Clean Harbors, Inc. (CLH). This non-nuclear hazardous waste disposal company services around 65% of all domestic hazardous waste in the U.S. Despite dropping 1.72% upon closing Tuesday, CLH maintains its high barrier to entry, with shares valued at $99.88 and a 20.2 P/E ratio. CLH reported a 61% increase in revenues in 2010, largely in part to their major participation in cleaning up the BP oil spill last summer. Although the dramatic revenue increase from this one-time boost is likely unsustainable, the publicity and extra capital from which CLH benefitted should help the company continue to grow, at least at a modest rate, further cementing its position as a power player in the field. Additionally, CLH announced last Wednesday its $196 million acquisition of Peak Energy Services, Ltd. This narrow-moat industry leader looks to be a promising addition to any portfolio.