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Secret Environmental Play
As you might imagine, the oil and gas industry produces a fair amount of
hazardous waste. So too does the petrochemicals market—chemicals, like
plastics, are made from oil and gas-derived products and it's not
exactly a clean business. And finally, in addition to spent nuclear
fuel, nuclear power plants also produce a fair quantity of what's known
as low-level radioactive waste; certainly this waste isn't as dangerous
as a spent uranium rods but it's not exactly the type of waste suitable
for your local landfill.
The US Environmental Protection Agency estimates that roughly 30 million
tons of hazardous waste was produced in the US in 2003. Of that, nearly
14 million tons were produced by the chemicals industry and another 4
million by the petroleum and coal products groups.
Hazardous waste management firms collect, transport, process and store
all that waste in specialized facilities. As energy and petrochemicals
demand grows, so too does the quantity of waste that needs to be
disposed.
After sifting through hundreds of different annual reports and a
mountain of obscure EPA research, I've uncovered a gem for you. This
small company is listed on the NASDAQ. It's stock has doubled over the
last five months and is poised to rocket higher!
The company's business can basically be divided into two segments:
ongoing waste removal and one-off environmental clean-up projects. Each
segment accounts for about half the company's revenues. It's ongoing
revenue segment offers more dependable revenues quarter to quarter to
cover ongoing costs associated with running disposal facilities. The
clean-up projects offer the big upside to earnings. And this year it
looks like their business is very strong--the company issued very
positive guidance on earnings for the remainder of 2006.
Due to the volume of waste the company has been handling its been able
to increase the price it charges for hauling and disposing of that
waste--average prices were up 8 percent quarter over quarter. On top of
that, the company has some big clean-up projects that will start
producing revenues in the back half of 2006. That includes a Honeywell
project that is scheduled to start in the second quarter and the
possibility that they will be awarded a contract to clean up chemicals
on the bottom of the Hudson River.
The company also directly mentioned the oil refining business in the
conference call. With all the maintenance at refineries this year
there’s a big opportunity for contracts relating to cleaning up that
waste. The stock is a bit extended after its initial post-earnings surge
but with rising margins and growth likely to exceed 25 percent this
year, it's a compelling play.
Robber Barons & Railroad Stocks
For many years, railroads suffered from consistently declining and
depressed rates. This meant the group generated very low returns on
capital because to keep operating they still had to shell out for track
repairs and maintenance on railroad cars. But this is no longer the
case. In recent years rising demand for electricity has spelled greater
demand for coal; to haul that coal, railroads have been able to
consistently boost their rates.
And it’s not just the energy sector that’s been strong--an increase
in imports from abroad has spelled growing demand for rail shipping
services to move those goods around the country. The same is true for US
exports--growing demand for US exports of agricultural products requires
moving ever more grain from the nation’s heartland to ports along the
coasts.
While it’s also true that higher diesel fuel prices spell rising costs
for the railroads, this isn’t a big problem. The better railroad
companies have partly hedged their diesel needs over the next year or so
at much lower prices. To cover the balance of these rising costs, the
railroads have tacked on fuel surcharges to their rates.
These fuel surcharges are important for two reasons. First, the
surcharges defray most, if not all, of the impact of rising energy
costs. And second, it serves to illustrate that the railroads now have
pricing power over their customers. The rails can now demand a higher
fee just to compensate for their rising costs. Such high surcharges
would have had little chance of surviving a few years ago.
The railroad industry has proven to be a highly profitable theme of THE
ENERGY STRATEGIST during the past six months. Long-time readers are
well aware that the nation's railroads are absolutely key to shipping
coal from mine-mouth to power plants. And due to a total lack of
capacity on the nation's rails, hauling rates have been rising sharply
in recent quarters.
In September, 2005 I began alerting my loyal readers to the upside
potential in transportation sector as it related to the coal frenzy. A
detailed snapshot of Burlington Northern Santa Fe (NYSE: BNI) was given,
along with a strong buy rating. In November, 2005 I provided detailed
and timely information on a coal barge operator and then pounded the
table on a small regional railroad in December.
These coal transport plays have been on a tear, up an average of around
80 percent in six months or less. Our subscribers have booked tremendous
profits reminiscent of the Gilded Age. We are looking at a monster
run-up in some barge and rail stocks going forward that you will not
want to miss.
Uranium Boom
The world is rapidly recognizing the myriad advantages of nuclear
energy. As a result, far from being a sunset industry, the nuclear
industry is entering a period of global growth. This growth is putting a
strain on the world’s available uranium production capacity.
Current production is insufficient to meet demand even if consumption of
uranium doesn’t increase. The reality of the uranium markets is that
consumption is likely to grow, not to remain stagnant.
Only a handful of companies have commercially recoverable reserves of
uranium. Canada possesses the world’s largest reserves of high-grade
uranium; its richest reserves are found in Saskatchewan’s Athabasca
Basin.
Uranium prices are already on the rise with spot prices up 43 percent in
2004 alone. As you might expect, there has been an explosion in highly
speculative uranium mining companies, mainly listed on the Canadian
exchanges. Some of these smaller, speculative plays may well be
worthwhile; I’ll profile some in an upcoming issue. For now, however,
I prefer to focus on well-established producing companies with known
reserves.
Cameco(NYSE: CCJ) controls about 65 percent of the world’s total known
reserves of natural uranium. Cameco produced 20.7 million pounds of
uranium in 2004, more than 20 percent of the total quantity or uranium
mined worldwide last year. For 2005, the company has targeted production
of more than 21 million pounds as it expands capacity at its core mines
in the Athabasca Basin.
My second play involving the uranium business is far smaller than Cameco,
and is poised for a massive move to the upside. This secret winner has
partnered with a giant French government controlled company on several
uranium exploration projects.
This is one of the few times in the history of US markets when average
ordinary investors may reap a financial windfall. Grab onto the uranium
boom and ride the wave to untold wealth.
We have only covered
several of the major themes I'm currently focusing on in THE ENERGY
STRATEGIST. In fact, I'm convinced that energy is the #1 can't-miss
investment play of the next two decades… and any investor who misses
out will deeply regret it. With furious global economic growth and a
dwindling supply of the energy that's so absolutely critical to fuel
that growth, you have the rare chance to participate in the mother of
all squeeze plays...an opportunity to capitalize on an irreplaceable
commodity that could give you multi-year gains of $10 and even $20 to
$1.
Sure, buying the big oil
stocks has been hot and you could make some decent money. My subscribers
demand more, however, and are looking for double or triple digit
returns. As you know, the truly astounding wealth in financial markets
is earned by those willing to look beyond the obvious. I look forward to
having the opportunity to serve.
© 2006 Elliott H. Gue
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