Pollution-Control Firms Will Clean Up
LAST week's Earth Day observances drew pro-environmental comments from both President Bush and Democratic front-runner Bill Clinton. The president reiterated his support for a "cleaner, safer environment." Arkansas Governor Clinton called for a more aggressive environmental program out of Washington.
No matter how their remarks were received by conservation and environmental groups, Wall Street is increasingly viewing the environmental area, including pollution-control companies, as a growth industry over the remainder of the 1990s. The industry's growth should be driven by increasing federal regulation and more assertive public opinion, according to Charles LoCastro, an analyst with Donaldson, Lufkin & Jenrette Inc., an investment house.
Still, analysts such as Mr. LoCastro caution that "selectivity" is necessary in buying pollution-control stocks.
The industry itself is huge, made up of large publicly traded firms, smaller privately held companies, as well as modestly capitalized ventures traded mainly on the over-the-counter market.
Certain sectors, such as the solid waste area, are considered "old" by industry standards, with slower growth likely in the next few years. A far more lively area is the hazardous waste incinerator sector. Existing companies are expected to dominate this market for years to come, given extraordinarily expensive entry costs for start-up companies.
Among major players in the pollution-control area are Safety-Kleen Corporation, Rollins Environmental Services, Laidlaw Inc., Chemical Waste Management Inc., and Browning-Ferris Industries Inc. All of these companies are traded on the New York Stock Exchange.
Browning-Ferris, for example, is the second-largest provider of solid-waste services in the US, and the largest provider of medical waste services. The company operates over 50 transfer stations, 100 landfills in the US, and has some 100 environmental projects in development, according to Prudential Securities Inc.
Owning pollution-control stocks can involve a degree of risk: their prospects are subject to political actions in addition to economic factors.
Another industry that looks particularly promising is the chemical industry, which to some extent is the flip side of the environmental sector.
Chemical stocks are currently considered to be a "leadership" sector within the broader stock market, according to Dennis Jarrett, an analyst with Kidder, Peabody & Co. Mr. Jarrett is not alone.
William Young and Charles LoCastro of Donaldson, Lufkin & Jenrette, say that the sector comprising the biggest companies in the chemical industry appears to be "favorable;" stocks are relatively inexpensive, with industry earnings expected to climb some 15 to 20 percent this year.
Meantime, specialty chemical firms also look promising, analysts say, because the firms tend to have a stable growth pattern irrespective of underlying economic conditions.
A subsector of the chemical industry that shows interesting potential is the "fibers group" that produces synthetic fibers for carpets and yarns.
According to Leonard Bogner and Steven Bloom, analysts for Prudential Securities, the fibermakers may be in the starting phase of a multiyear growth cycle. The two Prudential analysts expect fibermakers to benefit from rising sales, lower production costs, and higher plant utilization rates. Fibermakers' profits could climb at least 10 percent this year, they say, with earnings in 1993 even higher. Companies in this sector include DuPont, Monsanto, and Wellman.
To take just one category of fibers, textile fiber (mainly polyester), shipments have already increased despite the economic slowdown.
Even a modest upsurge in construction and housing activity should provide a quick boost to fiber companies.