While waste is always meant to be dumped, the reverse is true most of the time with stocks of companies that help us dump waste. In fact, these stocks offer decent returns with low volatility as demand remains fairly stable through the economic cycle.
Cleanup companies have been witnessing strong performance on Wall Street since the beginning of this year. Factors like rise in oil production, increasing municipal solid waste, strong construction activity, economic growth and increase in the ageing population have fueled growth for these companies.
The state of recycling business however has stayed poor, mainly due to China's National Sword Program, which banned the import of the majority of recycled products in the country. Recycling operations across the industry and the world have been severely hampered.
At this juncture, can waste management maintain its momentum?
Industry on Solid Footing
The financial health of the waste removal services industry bears testimony to the fact that the scenario has improved considerably for players despite recycling-related headwinds. Revenues, cash flows and dividend paid, have increased in the trailing 12-month period.
Increase in population, industrialization and urbanization has resulted in a significant rise in garbage and recycling. However, the number of places to store or dump garbage has declined with landfills being filled and closed. This has created opportunities for waste management companies.
Further, technology adoption and use of advanced collection and recycling solutions is increasing. New technologies in containers are helping companies to increase operational efficiency and save costs. High tech containers now include odor reduction systems and capacity sensors.
Year to date, the Zacks Waste Removal Services industry has grown 22.4%. It carries a Zacks Industry Rank (the average of the Zacks Rank of all the member stocks) of 104, which places it in the top 41% of more than 250 Zacks industries. This indicates solid near-term growth prospects.
Government Remains Involved
Better collection and processing are possible under proper regulations. Government initiatives to introduce sustainable waste management mechanisms and put a check on illegal dumping are driving demand for waste management services.
The Environmental Protection Agency’s (EPA) Resource Conservation and Recovery Act (RCRA), aimed at reducing open dumping and managing hazardous and non-hazardous waste, will significantly benefit the industry.
The Future Holds Good
In pace with rapid industrialization, awareness regarding renewable waste management systems is increasing and so are concerns regarding rise in CO2 emissions. These are creating growth opportunities for waste management service providers. Most of the companies have increased their focus on recycling municipal solid waste (MSW) and nonhazardous industrial waste management for reduction of pollution.
According to Allied Market Research, the global waste management market size is anticipated to reach $530.0 billion by 2025 from $330.6 billion in 2017, at a CAGR of 6.0% from 2018 to 2025.
Stocks That Warrant a Look
Year to date, the stock price of six major clean up companies have had an impressive run on the bourse. Stericycle SRCL, Clean Harbors CLH and Advanced Disposal ADSW gained 74.6%, 67.5% and 37.4%, respectively. Waste Management WM, Republic Services RSG and Waste Connections WCN rallied a respective 26.2%, 22.6% and 21.2%.
Advanced Disposal is a Zacks Rank #1 (Strong Buy). Others mentioned above are also considerable for your portfolio as they carry a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows year-to-date price performance of six major waste removal stocks compared with the industry and the Zacks S&P 500 composite.
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Clean Harbors, Inc. (CLH) : Free Stock Analysis Report
Waste Connections, Inc. (WCN) : Free Stock Analysis Report
Advanced Disposal Services Inc. (ADSW) : Free Stock Analysis Report
Waste Management, Inc. (WM) : Free Stock Analysis Report
Stericycle, Inc. (SRCL) : Free Stock Analysis Report
Republic Services, Inc. (RSG) : Free Stock Analysis Report
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