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Clean Harbors (CLHB) Converts Trash into Cash
Published:
March 24, 2008
As editor of StreetAuthority's
premium
Half-Priced Stocks newsletter, my ongoing mission is
to uncover some of the market's most attractive bargains --
stocks trading at steep discounts to their fair value.
More often than not, those companies get pushed down to bargain
basement prices because they have a few obstacles in their
immediate path -- rising expenses, merchandising miscues,
accounting irregularities, or anything else that causes the
myopic mob to sell first and ask questions later. In time, many
firms are able to overcome those roadblocks and get back on
track -- and more often than not, the shares follow suit.
However, every now and then it's possible to run across an
undervalued company that is breezing along just fine without any
complications at all. In these rare cases, the company has
become undervalued not because its shares are falling, but
because its fair value (which is a function of future cash
flows) is rising.
On the surface, these stocks might not appear cheap by
traditional valuation metrics, but overlooking them can be a big
mistake. Video game retailer GameStop (NYSE: GME), for example,
has changed hands at an average P/E of 31 over the past five
years -- pricey in the eyes of many. However, the company's
underlying fair value has exploded over this same time frame,
and the stock has been one of the market's best performers --
delivering a sizzling gain of more than +700%.
It was a search for precisely that type of company that turned
up Clean Harbors (Nasdaq: CLHB, $66.09) this past January. The
company is one of the nation's leading providers of hazardous
waste removal. As you might expect, there are only a handful of
places where hazardous wastes can be properly incinerated, 11
locations throughout all of North America -- and Clean Harbors
owns more than half of them.
As I noted at the time, recent industry consolidation has left
the entire industry in the hands of only five major players, and
Clean Harbors just expanded its fleet and posted a sizeable
+110% spike in annual free cash flow. Based on my assessment of
the firm's growth potential, I calculated a conservative fair
value of $60 per share -- well above the $51 where they were
trading.
And thanks in part to another blowout quarterly earnings report
last month, the shares have since zoomed past that mark and
climbed to $66 -- delivering a gain of almost +30% in less than three
months.
In this month's newsletter, I zero in on another growing company
that, similar to Clean Harbors, is free of any near-term
roadblocks. In fact, this global money management firm has seen
its assets under management (AUM) swell by more than $80 billion
over the past year, putting $3.4 billion in advisory
fees in its coffers. And as a master limited partnership, most
of the firm's profits are funneled straight through to
shareholders -- giving the stock a rich yield of 7.0%. Yet, despite
nearly tripling in value over the past five years, the shares
still have the potential to rise +27% before hitting their fair
value.
To read my complete profile of this exciting firm -- available
only to subscribers -- I invite you to join us at
Half-Priced Stocks. To learn more, please
visit
this link.
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Nathan Slaughter
StreetAuthority Staff Writer
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Income Security
of the Month
Our "Income Security of the Month" for July 2008 invests in
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appealing for its total return potential. Specifically, the fund has
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it ranks in the top 10% of its category over the past decade.
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