Market Vectors Environmental Services ETF

Market Vectors Environmental Services ETF: Adding Recession “Insurance” To Any Portfolio

by David Fessler, Advisory Panelist, Investment U
Friday, October 17, 2008: Issue #873

A friend of mine, along with his family, owns and operates one of the largest landfills in my area. He smiles and says, “It’s about as a recession-proof business as you can find. Here in the United States, people and businesses generate 750,000 tons of garbage every day. The trucks never stop coming.”

Many years ago, before recycling became popular, the company started a recycling operation as a natural extension of the landfill business. It’s doing very well. When any given recyclable commodity goes up, the company’s a seller. The rest of the time, it just stores the copper, steel, aluminum and a dozen other scrap metals and plastics in huge mounds.

Now the company plans to “drill the pile” and tap into the vast source of methane gas generated when garbage decomposes. That solves a big problem with landfills: smell. Some of the power produced will be used at the site and the excess will be sold off to the local power company.

Plans to expand the landfill are currently under way. And even though the company gives back to the community in many ways besides paying taxes, the expansion is being met with mixed feelings by local residents. It’s the old “NIMBY” (not in MY backyard) argument. So what’s the best way to play the garbage game?

Market Vectors Environmental Services: A “Trashy” ETF

Not surprisingly, there is a “trash” exchange traded fund (ETF), called Market Vectors Environmental Services ETF (AMEX: EVX) that seeks to replicate the performance of the AMEX Environmental Services Index.

The 24 companies in the AMEX ESI include those involved in the management, removal and storage of consumer and industrial waste (trash haulers and landfill operators), and related environmental service companies.

Three of the top four holdings of EVX are trash haulers and landfill operators: Waste Management, Inc. (NYSE: WMI), Republic Services, Inc. (NYSE: RSG) and Allied Waste Industries (NYSE: AW). Veolia Environnement (NYSE: VE), an international environmental services company, rounds out the top four.

EVX shares – cut in half by the recent market rout – have recently rebounded to the $35 range, but still trade well below the 52-week high of $58.54 reached this past June. EVX sports a yield of 1.5% and is a great buy at current levels.

Special Mention - Clean Harbors Included in Amex: EVX

Clean Harbors (Nasdaq: CLHB) – a vertically integrated environmental services and hazardous waste treatment company – is included in the EVX ETF, but merits special mention.

Handling the hazardous side of waste disposal and management is Clean Harbors’ special focus, and business is booming. Revenues are up 55% in the last three years, and earnings are up an even more impressive 81%.

Clean Harbors is the leading provider of environmental services in North America, with 45,000 customers located in the United States, Mexico, Puerto Rico and Canada. The company’s customer list includes 325 of the Fortune 500 companies, and it services them from over 100 locations.

Treating and disposing all this hazardous waste requires extremely specialized facilities, and Clean Harbors has that covered, too. The company owns and operates six hazardous waste incineration facilities, six wastewater treatment plants, nine landfills, six PCB (polychlorinated biphenols) management facilities, two waste oil reprocessing and recycling facilities, and 20 TSDFs (transportation, storage and disposal facilities).

The second quarter of 2008, ending in June, was a record for the company. CEO Alan S. McKim had said, “Clean Harbors delivered another record quarter in Q2, with double-digit increases in both revenue and profitability. Solid growth across nearly all of our operations enabled us to generate revenues of $265.3 million.”

Currently, shares are trading midway between their 52-week high/low, and represent an excellent buy at current levels.

I expect that the third quarter of 2008 will be another good one for the company, perhaps another record. We won’t have to wait long. It’s expected that earnings will be announced on November 3, 2008.

In summary, both Market Vectors Environmental Services ETF (AMEX: EVX) and Clean Harbors represent two great ways to add some recession resistance to your investment portfolio while you wait for the global economy to slowly recover.

Good investing,

David

Today’s Investment U Crib Sheet

Recently, David reminded us why we should be buying in downturns like this one:

“What we’re witnessing today in the markets is the end of an old beginning (the housing boom and the subsequent credit crisis). And while the media, Congress and scores of others spend time pontificating, pointing fingers and engineering “fixes,” the smart investors are making investments. Warren Buffett is certainly the most visible investor who’s out there shopping for bargains… and even though we aren’t quite as famous, we’re shopping, as well.”

Floyd Brown, repeated his call that stock prices are out of line:

“The current mess has created lots of imbalance in stock prices. As thousands of financial professionals worry about their job prospects, stock prices are getting hammered. But that doesn’t mean that all of these companies deserve this mistreatment. There are solid businesses out there that have been completely undervalued by the market.

I’ve long been a proponent of contrarian investing and buying assets on the cheap. It delivers superior long-term returns and uncovers portfolio “superstars.” And it seems that I’m not the only one beating the pavement for deep values…”

And Alex Green warned us not to flee to cash:

“Unfortunately, too many frightened investors are taking a shovel to their stock portfolios right now. Worse still, their investment advisors are goading them on. The investment lesson is this: Over the long haul, stocks have consistently delivered superior returns, throughout expansion, recession, inflation, deflation and war.

“Investing only when the backdrop feels “safe” has not been a good method of achieving high future returns. Of course, the market can always go lower than you think it will – and for longer than you think it will – before a major uptrend appears. “

But don’t take our word for it…

On October 16, 2008, legendary investor Warren Buffett contributed a guest editorial to The New York Times. In it, he says:

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

We couldn’t have said it better. And Buffett goes on to explain why pulling out of the market doesn’t make sense either.

“Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month – or a year – from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

Any time a guru like Buffett speaks, we listen. And you should, too. His comments are definitely required reading. Follow the link to see the full editorial by Warren Buffett.

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