During the 1980s, shares of pollution-control companies gained an average 800% in value. Since mid-1990, though, prices for so-called environmental stocks have fallen like acid rain, pulled down by recession jitters and bad news at industry heavyweight Browning-Ferris. Now, many analysts, who think the group's shares were overvalued in July, believe the time is right to buy.
With a big backlog of air and water cleanup jobs and with municipalities short of funds to operate landfills, pollution control "is poised to be one of the growth industries of the `90s," says Larry Greenberg, manager of the Fidelity Select Environmental Services Portfolio. The sector includes solid-waste haulers, recyclers, air- and water-pollution controllers, and toxic-waste processors.
Waste Management is the biggest holding in most environmental mutual funds and a popular pick for individual investors. The company has the financial muscle to expand its 13% U. S. market share. Its $1 billion sales in Europe are growing, and it recently signed a $400 million contract to dispose of hazardous waste in Hong Kong. The stock has dropped 17%, to 34 1/4, from its mid-1990 high. Its price-earnings ratio, based on 1990 earnings, is down from 34 to a more palatable 24.
Shares of rival Browning-Ferris took a hit when third-quarter earnings came in below forecasts. Although the company's operations are more concentrated in the depressed Northeast than Waste Management's, some analysts say the stock, at 22 1/2, is a good long-term buy. Its p-e has plunged from 26 to 13 since midyear.
Stephen Schweich of Alex. Brown & Sons likes Tetra Technologies, whose proprietary system for treating toxic waste can be used in such facilities as auto plants and steel mills. Schweich thinks the stock, at 14, could do well in a recession as manufacturers try to save by processing waste on-site.
NOT IMMUNE. Emcon Associates, a consultant on managing waste, saw its stock double, to 23 1/2, in 1990. Demand for its services is unlikely to cool. But Emcon has a rich p-e of 57. Vishnu Swarup of Prudential-Bache Securities says a better buy in the same field is Ecology & Environment. The stock is trading at 14 5/8, with a p-e of 12.
One caveat: Pollution-control companies are not immune from Environmental Protection Agency fines or other punitive charges. As with any industrial company, watch for liability problems that could sully the bottom line.
POLLUTION PLAYS BECOME LESS PRICEY Company Price-earnings ratio July 2, 1990 Jan. 7, 1991 BROWNING-FERRIS 26 13 SAFETY-KLEEN 30 26 WASTE MANAGEMENT 34 24 WELLMAN 15 9 DATA: BRIDGE INFORMATION SYSTEMS INC.