I’ve always liked the saying, “You can’t have your cake, and eat it too.” It’s generally a good rule of thumb on Wall Street. If growth is doing well, often value is suffering. If interest rates are rising, stocks (not always, but often eventually) are falling.
But there are some companies that actually can have their cake and eat it too, in a manner of speaking. One of these fortunate companies is Clean Harbors (CLH).
Clean Harbors is in the business of waste management, operating in the industrial sector, where it manages industrial, chemical, and hazardous waste disposal for most of the companies on the Fortune 500 list. But the company also is one of the largest refiners and resellers of used oil in the U.S., which it gets from its Safety-Kleen business. (Thus, having its cake, getting paid to collect dirty used oil, and eating it too, selling refined oil.)
There are two things in particular I like about CLH here. First, the aforementioned oil refining. With Saudi Arabia extending their production cuts through 2024, oil rigs declining substantially over the past year, the need to refill the strategic oil reserves, and no foreseeable clear energy policy in the U.S., I don’t foresee oil prices coming in by a large amount anytime soon.
Second, if Chairman Powell isn’t quite able to stick the soft landing, and interest rates, which have spiked recently, do lead to a recession in the U.S. early next year, Clean Harbors industrial waste business is recession resistant. There is always waste to handle, even in a recession.
In Q2 CLH delivered record revenue in the disposal and recycling business, with revenue in the Safety-Kleen business increasing 16% YoY. It should be noted that Clean Harbor expected oil prices to remain under pressure in the second half of 2023, and, since they obviously did not happen, this may add a kicker to the current quarter’s earnings.
CLH trades at a PE of just under 22, with gross margins just under 25%. The company rates a B in our POWR Ratings, clocking in nearly 80% above all other U.S. stocks in Quality and Value.
Another company that arguably has its cake and eats it too, though to a lesser extent than CLH, is Concrete Pumping Holdings (BBCP). As the name implies, BBCP is in the concrete business, and has been a beneficiary of the recent infrastructure spending here in the U.S.
But Concrete Pumping also has a growing recycling business for the concrete industry, so they benefit from both removing concrete as well as laying additional concrete. That recycling business grew 29% YoY in the latest quarter, as net income from the business increased 100%.
As CEO Bruce Young stated in the company’s earnings release, “The growth we experienced in the first half of the year accelerated in our record-setting third quarter, driven by double-digit revenue growth in every segment of our business…and our expanding U.S. footprint continued to allow us to win infrastructure projects.”
Overall, in the quarter, net income from operations increased 38%, with revenue increasing 16%. The company is using its current cash flow to pay down debt and strengthen its balance sheet.
BBCP has an overall B rating in our POWR Ratings and is ahead of 93.83% of all the companies we track. It is actually number one in the waste disposal category, which as I mentioned above is a rapidly growing part of Concrete Pumping’s business.
As interest rates continue to rise it’s important to find stocks with a little something extra to withstand an economic slowdown. CLH has the support of sticky oil prices and a recession resistant waste management business, and BBCP has government infrastructure spending that has already been allocated for several years forward.
Both of these companies are doing well in the current environment and should be a bulwark in any coming economic storm.
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CLH shares were trading at $162.00 per share on Tuesday morning, down $1.83 (-1.12%). Year-to-date, CLH has gained 41.96%, versus a 11.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.
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