One graphic example of how much environmental-service companies have fallen from investor grace is OHM. In its heyday in 1987, when pollution-control stocks were very much in vogue, OHM traded as high as 36 a share. Since then, they have hit the skids. OHM crashed to single-digit levels and is currently trading on the Big Board at 6 7/8. So why are some value investors buying shares?
The environmental cleanup business is turning up quite dramatically for OHM, whose key business is the on-site remediation, or detoxification, of hazardous waste, says Ed Wachenheim III, chairman and CEO of Greenhaven Associates. OHM's earnings were very badly hurt in recent years because the recession hit when the company's expenses were rising sharply as OHM expanded into the Southern and Western states. But business has improved, with order backlog rising 50%, to $370 million as of Sept. 30, from a year ago.
"OHM should materially benefit from increased environmental spending under a Clinton-Gore government," argues Wachenheim, who ranked third in performance among money managers over the past 12 months. He expects OHM to boost earnings to 20 cents a share this year, 60 cents next year, and more than $1 in 1994. One kicker: OHM is expected to put its three other small businesses on the block: 70%-owned NSC, a publicly traded asbestos-abatement company; 50%-owned Concord Resources, which owns two waste-dump sites; and Solidtex Systems, which owns a detoxification facility.
Oil and chemical companies are OHM's big customers, but its next target will be city and municipal governments, says Wachenheim. He believes that with OHM's much-improved business outlook, the stock is worth at least twice its current price.