Recycling for Higher Returns: Potential Conservation Investments

We are in the midst of a cyclical downturn in the economy. When it will turn up again is something debated ad nauseum, but it will turn up again. One area that has captured my attention over the past several months is the broad theme of recycling. As a society, we are becoming increasingly aware of the scarcity of our natural resources. While most investors are familiar with more traditional recycling plays, I have identified several that could be described as more modern versions. The companies in the table below share the common trait of reusing materials that would otherwise be considered waste to create alternative supply sources for new products (or aiding in that process). With these companies, perhaps investors don’t have to worry as much about when the economic cycle improves:

Source: StockVal

I happen to own Astec (ASTE). While I knew it had some green aspects, I didn’t realize how much so until I read the recent annual report. Their “Double Barrel Green System” not only reduces the smoke and smell of asphalt production, but also reduces fuel consumption significantly. Astec equipment allows the use of up to 50% used asphalt in creating new mixes. The company sells equipment that allows road contractors to reclaim existing asphalt as well. Finally, the company’s Peterson Horizontal Grinders allow stumps and branches from land clearing to be used as mulch or energy sources. My reasons to invest in ASTE go beyond what I have just mentioned – they have a spectacular balance sheet, a customer-focused business, a strong management team and a not widely known play into horizontal gas drilling. Perhaps I will devote more time to a more comprehensive review in the near future.

Covanta (CVA) turns garbage into electricity using incineration. Darling (DAR), like CVA, has been a “darling” of a stock. The company collects animal by-products and restaurants’ used grease (from 15,000 different sources) and converts them to finished products in its 39 plants. Haemonetics (HAE) sells equipment to help collect and process blood donations, but it also has products that allow a patient to reuse his or her own blood. LDK Solar (LDK) is an EXTREMELY controversial company, but is built upon a very compelling notion of selling solar wafers derived from scrap polysilicon. LKQ (LKQX) buys used/totaled cars in order to obtain and resell refurbished parts. Finally, Schnitzer Steel (SCHN) is a metals recycler that also competes with LKQX to some degree.

I have some other ideas too – pawn shops like Cash America (CSH) or EZCORP (EZPW) (see my article), which now are increasingly melting gold as well as continuing to provide a market place for used goods, as well as companies like Ebay (EBAY) certainly help to save our resources by allowing one man’s junk to become another’s treasure, but they differ from the companies above in that they lack technology. Still, while not thought of as “recyclers”, they are indeed helping to make the world better as reuse allows for lower production of new resource-consuming goods.

My son will become a Bar Mitzvah in a few weeks, and, in honor of this milestone, he devoted a great deal of time and energy to his mitzvah project, which was based upon recycling. I am hoping to identify one of the stocks mentioned above as worthy of investment so that I can suggest to him to use a portion of his monetary gifts to make a purchase. I am open to any other ideas and encourage you to either email me or leave a reply to this posting if you are aware of any companies that play a significant role in recycling/reuse.

Disclosure: Long EZPW, ASTE

Comments

[bsharvy:]

EPG recycles cow manure into natural gas.

2008 Apr 14 05:54 AM

[User 125183:]

mozel tov. How about buying 100 shrs. of clne and seeing what it will pay for as high school graduation approaches in 2013.

2008 Apr 14 08:53 AM

[wdc:]

Hi, Alan: Do you think the last run you mentioned in previous article is finished and now it starts downturn, Or it can go higher?
Thanks.

2008 Apr 14 09:26 AM

[surfgrrl:]

look at COIN- recycling food waste, ag & fish byproducts into organic fertilizer

2008 Apr 14 11:12 AM

[Alan Brochs...:]

WDC, I think it goes higher. The fact that it is taking so long to play out is probably a bit bullish longer-term (in terms of reducing the odds of a new low). The gaps from 3/31 to 4/1 have been filled

2008 Apr 14 06:34 PM

[girl:]

EPG, CVA, and CLNE are the companies to keep you eye on

2008 Apr 17 12:01 PM