Water and waste management are fundamental to the smooth functioning of any economy, yet these sectors are often overlooked in investment portfolios. The water value chain includes companies involved in pumps and valves; water filtration and purification; water-related infrastructure and networks; metering and billing; and wastewater treatment.
Waste solution providers include companies involved in waste collection, transporting, sorting, and recycling; hazardous-waste management; pollution prevention and control; environment planning; and related consulting and engineering services.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Recurring revenue raises resilience
Republic Services (NYSE: RSG) is a leading provider of non-hazardous solid-waste management and recycling services in the US. The company’s recurring business model provides stable revenue streams, fostering resilience to economic downturns. RSG offers stable pricing, driving mid-single-digit organic growth along with contributions from acquisitions.
Investments in advanced recycling and landfill gas-to-energy projects reinforce its leadership in sustainability and technology. With strong free cash flow, disciplined capital allocation and a prudent dividend policy, RSG balances shareholders’ returns with reinvestment in innovation and operational efficiency. The stock is enjoying a rerating.
Watts Water Technologies (NYSE: WTS) is a global provider of plumbing, heating, and water-quality products and services, serving a large and diverse market with an estimated value of around $20 billion. The company is well placed to capitalise on secular trends in water conservation, energy efficiency and sustainability – critical issues for residential, commercial, and industrial customers worldwide. The business includes a division dealing with repairs and replacements of parts, and has historically generated stable free cash flows.
Watts is rapidly expanding its portfolio of “smart and connected products”: devices capable of being connected through the Internet of Things. These products now comprise 25% of sales and command premium pricing thanks to their ability to reduce consumption of resources and improve operational efficiency. We also expect the firm to enjoy strong pricing power, mitigating any immediate impact from tariffs.
Going for growth in Japan
A lesser-known waste management company we like is Daiei Kankyo (Tokyo: 9336), a leading Japanese waste management and recycling company. It operates in a highly fragmented Japanese waste-management market, with the top four companies accounting for less than 4% of the market. The company is targeting at least ¥10 billion in acquisitions over three years.
Daiei Kankyo recently released its medium-term strategy, and we are encouraged by its near-term plan of maintaining a 35% Ebitda margin while it continues to invest in growth areas, including public-private partnerships. Shareholders’ returns also remain a priority, with a consolidated dividend payout ratio above 33%.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Gender pension gap rises to £113,000 – how to fill the shortfall and boost your pensionThe gender pension gap is growing, says Scottish Widows, with a third of women facing poverty in retirement
-
Highest value stocks and shares ISAs worth 17 times more than cashAhead of potential ISA reforms in the Budget, new FOI data highlights the significant gap between saving and investing your yearly tax-free allowance
-
Three solid British stocks going cheapOpinion Ian Lance and Nick Purves, fund managers at Temple Bar Investment Trust, highlight three British stocks with strong cash flows and robust balance sheets
-
Is now a good time to invest in Barclays?Barclays' profit growth is healthy, and the stock is cheap compared with its rivals
-
MoneyWeek experts pick the best investments for the next 25 yearsMoneyWeek's experts predict the best investments for the next quarter-century. Tips range from defence and agriculture to Vietnam and Jardine Matheson
-
Global investors have overlooked these solid stocks going for growthOpinion Nisha Thakrar, investment specialist at Nedgroup Investments, selects three undervalued stocks with long-term growth potential
-
LVMH is set to prosper as the wealthy start shopping againAfter two years of uncertainty, the outlook for LVMH is starting to improve. Is now a good time to add the luxury-goods purveyor to your portfolio?
-
Cash in on the vast growth potential of the companies electrifying the worldOpinion Martin Todd, portfolio manager, head of sustainable equities, Federated Hermes, highlights three electrification companies where he'd put his money
-
Galliford Try has firm foundations for strong growthBuilder Galliford Try has a finger in a wide range of pies, notably important work in the public sector
-
Card Factory is a stand-out small-cap going cheapIn a digital world, we still value the personal touch. That’s good news for Card Factory, whose unique business model is suited to weather all economic storms
