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ENVIRONMENTAL


THE ENVIRONMENTAL CATEGORY

The Paradigm Portfolio of the Roen Financial Report website follows businesses that address pressing global environmental problems. In an effort to cover a variety of companies doing important work in the area of environmental improvement, the Roen Financial Report analyzes leading businesses in the environmental field.

Companies in the “Environmental” category are involved in critical endeavors, one of which is the growing concern around the procurement of potable water, as well as the treatment of wastewater. Another concern is waste reduction in its various forms—source reduction, recycling and waste-to-energy. Waste reduction is a large component of this category.

These environmental efforts all have a compelling investment story that goes along with their efforts to improve the environment while providing much needed products and services.

THE NECESSITY OF WATER TREATMENT

One of the most pressing environmental issues is the availability of potable water. It is extremely disheartening that safe, reliable, accessible water sources are not available to large numbers of our human community. Supplying this need for the world’s growing population is a basic human right. This issue has been brought to prominence by the United Nation’s Millennium Development Goals report.

The lack of availability of this basic need for many people is deplorable, as only 42% if people in rural areas have access to safe and clean drinking water.[1] By 2015, the United Nations has set an ambitious goal of reducing by half the portion of the population that does not have access to safe drinking water and basic sanitation.

IMPORTANT EFFORTS IN WASTE REDUCTION

In the United States alone, about 250 million tons of garbage is thrown out every year.[2] This is almost double the amount generated in the 1970’s, despite the fact that this is when Earth Day started and a strong environmental movement was taking hold. As landfill space continues to fill and municipalities have fewer choices of where to send their garbage, waste reduction become more and more important.

Decreasing solid waste can take many forms. The most important is source reduction, in other words reducing the amount waste materials that get produced in the first place by reducing factory wastes, packaging materials and the like. This includes efforts to increasing the amount of products in a production cycle that can be reused and/or repurposed instead of being added to the waste cycle.

Recycling after a product has been produced is an obvious component of waste reduction. In 2008, it was estimated that about 61 million tons of garbage was kept out of U.S. landfills through recycling. [3]

Waste-to-energy has a double advantage to the environment – it decreases the amount of garbage going in to landfills, and replaces fossil fuels that would otherwise be burned to generate electricity, thus decreasing pollutants. There are potential pollution issues when burning solid waste to generate electricity, but better combusting technology and pollution controls have brought efforts a long way since the older trash burning plants of a previous era.

ENVIRONMENTAL COMPANIES IN THE PARADIGM PORTFOLIO

Companies within the Roen Financial Report website, like Nalco, Eaton, and General Electric have led the market in producing solutions to global water shortages. Nalco, for example, has worked in the past few years with water conservation in an effort to improve the quality of water for corporate use while using less of it. These technologies also have large public sector implications.

By focusing on international zones with significant shortages of potable water, companies like GE and Eaton have started to provide technologies that will clean existing water for the people that need it in areas like Southeast Asia, India, and Africa. These developments are being made possible through the introduction of technologies that are purifying waste waters to make them safe for consumption while companies like CVA and Waste Management are making areas safer to live in by improving the quality of waste removal and recycling technologies.

WATER DEMAND REDUCTION – NALCO HOLDING COMPANY (NLC)

Nalco is an Illinois based company specializing in water treatment and energy services. Their approaches include improving the quality of existing water through the use of proprietary boilers and applications that enable used water to be reintroduced into the environment. Further, their technologies enable increased conservation, which leads to decreased consumption by industrial users.

According to Nalco,

Using less of the world’s precious resources not only makes good sense for sustainability, but also for the economy, as reduced demand for resources can lower costs of operation. In addition, using less water means less wastewater to treat and to impact the local environment .”[4]

Businesses that help the environment while helping a company’s bottom line are perfect candidates for the Paradigm Portfolio of the Roen Financial Report website.

RECYCLING WATER WHERE IS IT NEEDED – GENERAL ELECTRIC (GE)

General Electric has led the marketplace in research of Water issues. In 2010, GE announced the shaping of an executive team focusing on the need for a supply of potable water for everyone in the world.[5] This focus will pick up the pace of providing new technologies for the world that will improve the quality of water for all reaches of the globe. As an example, GE has led research into the mass development of Solar Water Disinfection systems. These systems purify water in areas where potable water is hard to come by.

GE’s current commitment to the availability of potable water throughout the globe is evident in their work with India to address the country’s water shortage. GE has established a strong partnership with Ramky Enviro Engineers, India’s leading environment and waste management organization. GE and Ramky will first concentrate on waste water recycling.

“Under the agreement, GE’s industry-leading ultra filtration (UF) and membrane bioreactor (MBR) technology will be utilized by Ramky for waste water treatment and recycling in India’s industrial sector. It is estimated that the need for advanced waste water treatment in this sector will increase by approximately 18 percent each year. This demand is driven by new regulations combined with greater efforts from the industry to meet environmental responsibilities .”[6]

This is a perfect example where good business practices go hand-in-hand with benefiting the environment where it is needed most.

According to GE Power & Water, the arm of General Electric that oversees research into Water and Process Technologies,

“GE is committed to identifying and implementing solutions that address water availability and quality issues, increase productivity, reduce energy consumption and operational costs, and meet growing environmental regulations. As concerns about water scarcity and energy demand increase, our GE Power & Water business is bringing together experienced researchers and advanced technologies to develop new innovations for water purification and conservation that allow the industry to operate as efficiently as possible .”[7]

TURNING WASTE INTO ENERGY – COVANTA HOLDING CORP (CVA)

Transforming waste that is destined for a landfill, or worse, and turning it into usable energy is the principal business of Covanta. A New Jersey based company with projects in 18 states and abroad, Covanta is in the business of reducing landfill costs and impacts, while offsetting carbon by counteracting the need to burn fossil fuels.

This winning combination, along with skilled management, has helped this company to grow. As an example of their strong management, Covanta has had steady or increasing free cash flow per share every year since 2004. This is rare a quality, occurring in less than 1% of companies this size, making this company stand out within the Roen Financial Report website.

RECOMMENDATION

Companies involved in environmental remediation and improvement remain in strong demand, considering the increasing strains put on our planet every day. As clean water supplies decrease through overuse and pollution, ways to reduce water consumption, increase sanitation, and provide new sources of clean water will become more and more important. This basic human right cannot, and should not be ignored.

As the cost of manufacturing products rise due to the increased price energy and raw materials, recycling gets more economical. Add to this the increased difficulty of finding landfill space. According to the Environmental Protection Agency, the number of landfills in the U.S. fell an astounding 78% in 27 years, from 7,924 in 1980 to 1,754 in 2007! [8] Recycling, waste-to-energy and source reduction will all continue to be important strategies used in environmental improvement for years to come.

IMPORTANT IMFORMATION

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article.

It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions.

REFERENCES

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Environmental Returns
Ticker Day Week Qtr Year
A 0.0% 2.4% -26.7% -21.5%
ARCI -0.4% -0.4% -10.7% -18.6%
BMI 2.8% 2.5% 9.4% 6.2%
CCC 0.8% 1.5% -1.3% 3.5%
CDXS -0.8% 3.5% 0.0% 71.9%
CECE 5.4% 1.6% 3.6% -8.8%
CLC 1.6% 0.4% 7.2% 9.7%
CLH 0.5% -0.8% -19.1% -8.0%
CVA 1.6% 1.4% 17.4% 39.0%
CWCO -0.1% -0.2% 3.7% 1.9%
CWST 1.2% -0.5% -11.9% -28.0%
DAR -0.7% -0.3% -3.1% -8.6%
DCI 1.2% -6.3% -1.3% -3.7%
ECL -0.1% 2.1% 0.7% 6.6%
ECOL 0.4% 1.6% -10.7% 6.9%
EEI 0.2% -0.4% -7.8% -13.8%
ERII 5.6% 11.9% 15.4% 9.6%
FELE 2.5% 3.6% 0.7% -12.6%
FTEK -3.1% -2.2% -13.6% -33.8%
GE 0.0% 1.5% 3.3% -0.3%
GLW 0.3% 3.0% 2.1% 21.6%
GRH 1.5% 8.1% -29.1% 0.0%
HASI 1.0% -0.7% -6.7% 13.7%
IDSA 0.6% 2.5% -17.5% 106.3%
ITRI 0.5% 1.8% -2.3% -4.1%
KAI 1.0% 0.8% 3.2% 3.9%
LIME 6.6% 11.2% -11.3% -0.6%
LKQ 0.7% 0.8% 6.2% -12.3%
MBLX 3.8% 7.8% -15.4% -27.6%
MEA 0.0% -14.6% -68.5% -77.3%
MG 1.1% 0.6% -18.3% -12.4%
MITSY -0.2% -1.1% -16.5% -1.2%
NUE -0.9% -0.4% 0.3% 3.7%
OTTR 0.0% 0.0% 2.9% -1.1%
PLL -0.4% 1.1% 17.8% 14.4%
RAVN 1.8% -8.2% -12.2% -39.7%
RKT 0.1% 0.2% 17.9% 17.5%
ROP 0.2% 1.4% 5.5% 23.0%
SBS -3.9% 6.4% -11.9% -28.1%
SCHN -0.1% -1.5% -14.7% -23.0%
SHCAY 0.0% -2.8% -19.9% -22.5%
SRCL 0.4% 0.0% 6.7% 6.4%
STKL 0.1% -2.3% -8.3% 33.1%
TILE 1.3% 2.1% -9.4% -18.5%
TRMB -0.9% -1.8% -17.4% -12.1%
TTEK 0.5% 1.8% 7.2% -4.1%
VRNM 0.0% 0.0% 0.0% 0.0%
WCN 0.4% -1.9% 0.5% 10.4%
WM 0.3% -0.9% 4.8% 5.6%
Average 0.7% 0.7% -5.1% -0.6%
Data as of: 11/25/2014
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