In this article, we will take a look at the 10 best recycling stocks to buy according to hedge funds.
Imagine living in a society where all kinds of waste are converted into useful resources that power sectors like construction, energy packaging, and automotive while reducing landfill clutter. That’s the reality as calls for sustainability fuel recycling in the race to protect the environment and resources.
Consequently, the waste recycling services market is experiencing robust growth amid increased awareness of environmental sustainability, stringent waste disposal regulations and increased focus on resource conservation. With the recycling services market projected to be worth $78.43 billion by 2028 (as per The Business Research Company), there are tremendous opportunities to unlock by focusing on companies that are involved in the space.
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One of the key areas with tremendous potential in the recycling business involves plastic purification so that it can go back into the circular economy. Katherine Ogundiya, an analyst at Barclays, believes the crop of companies working on plastic recycling has been overlooked, yet they possess tremendous upside potential. “Advanced recycling has immense potential to transform the plastic waste crisis,” she said in a research note to investors.
The metal recycling market is growing significantly, primarily driven by the increasing demand for consumer electronics. Electronic waste is produced in tandem with the growth in the production and use of gadgets like smartphones, laptops, tablets, and home appliances. Essential metals that can be recovered and recycled, such as copper, aluminum, gold, and silver, are present in these devices. To preserve natural resources and lessen the environmental impact of mining and processing new metals, it is essential to recycle metals from e-waste.
The Environmental Protection Agency announced $2.6 billion in newly available funding for drinking water infrastructure through the Bipartisan Infrastructure Law to accompany that rule.
Based on data gathered in 2021, the Environmental Protection Agency projected in a report to Congress last year that the United States will require $625 billion in investments over two decades in drinking water infrastructure. The investment should also benefit companies engaged in the water recycling business by 2030.
The recycling sector is a prime example of how profit and the environment can coexist at a time when sustainability is a major topic of discussion worldwide. In addition to promoting a greener future as we move toward a more circular economy recycling companies offer access to a thriving market with substantial growth potential.
We’ll introduce you to some of the most notable waste management and recycling companies in this article. These businesses spearhead change and present astute investors with exciting prospects of long-term shareholder value.
Source: Pexels
Our Methodology
To compile the list of the best recycling stocks to buy according to hedge funds, we used a stock screener to find waste management and recycling companies. We then selected the stocks that were the most popular among elite hedge funds, as of Q2 2024. Finally, we ranked the stocks in ascending order based on the number of hedge funds that held stakes in them.
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10 Best Recycling Stocks to Buy According to Hedge Funds
10. Quest Resource Holding Corporation (NASDAQ:QRHC)
Market cap as of November 7: $166.53 Million
Number of Hedge Fund Holders: 7
Quest Resource Holding Corporation (NASDAQ:QRHC) is a waste management company that provides solutions for reuse, recycling and disposal of waste streams and recyclables. It also provides disposal and recycling services for motor oil and automotive lubricants, oil filters, scrap tyres, oily water, and goods destruction. Its competitive edge as one of the best recycling stocks stems from providing waste and recycling solutions to some of the biggest companies, including Fortune 1000 firms.
Additionally, Quest Resource Holding Corporation (NASDAQ:QRHC) stands out in the waste management and recycling business for not owning any physical assets or handling waste directly. Instead, the company leverages a network of over 3,500 vendors to manage waste streams. The business model allows Quest Resources to handle different types of waste across various regions, including general recyclables, automotive, food, hazardous, and construction waste.
Quest Resource Holding Corporation’s (NASDAQ:QRHC) pricing advantage, fueled by the scale of its operations and vendor cost leverage, fortifies its competitive edge and permits additional market penetration. Since 2020, it has tripled its revenue and quadrupled its EBITDA, demonstrating impressive growth that is predicted to continue in 2024. Contractual agreements generate high-margin, recurring revenue for the company, which has led to a net revenue retention rate of approximately 105%–110%.
Operational efficiency, cost competitiveness, and technological investments are some of the factors that should support Quest Resources’ robust growth. Additionally, a robust pipeline, with a customer base well poised to expand, should allow Quest Resource Holding Corporation (NASDAQ:QRHC) to generate long-term value.
9. PureCycle Technologies, Inc. (NASDAQ:PCT)
Market cap as of November 7: $2.32 Billion
Number of Hedge Fund Holders: 12
PureCycle Technologies, Inc. (NASDAQ:PCT) specializes in recycling polypropylene plastic (PP) waste into new plastic. It holds a license for restoring waste PP into ultra-pure recycled polypropylene resin with multiple applications, including packaging and labeling for consumer products for various industries. It is one of the best recycling stocks to buy, going by the 200% plus gain year to date.
The gain has come from PureCycle Technologies, Inc. (NASDAQ:PCT) inking a strategic partnership with Procter & Gamble to strengthen its prospects in the polypropylene recycling market. The deal sets the company on the path to generating value in a market projected to expand from $8.2 billion in 2022 to $13.5 billion by 2030. The two companies have already begun constructing a plant in Ohio to recycle polypropylene (PP) plastic.
Additionally, PureCycle Technologies, Inc. (NASDAQ:PCT) has obtained a $90 million funding package from Samlyn Capital and Sylebra Capital Management, which is anticipated to enhance its production capacity and support its cutting-edge polypropylene plastic recycling technology. Initial sales have begun for the company, and higher revenues are expected in the fourth quarter.
8. Casella Waste Systems, Inc. (NASDAQ:CWST)
Market cap as of November 7: $6.70 Billion
Number of Hedge Fund Holders: 16
Casella Waste Systems, Inc. (NASDAQ:CWST) is a waste management company with a robust recycling, collection, organics, and disposal facility infrastructure. It offers resource management services primarily in solid waste collection and disposal. While the stock is up by more than 17% for the year, the upward momentum comes against solid financial results affirming the company’s growth metrics.
Strategic investments in frontline operations have been the catalyst behind Casella Waste Systems, Inc. (NASDAQ:CWST), achieving over $400 million in revenue in the third quarter and over $10 million in adjusted earnings for the first time. As reported on October 30, 2024, revenue in the quarter was up 16.7% year over year to $411.6 million, with adjusted EBITDA increasing 14.9% to $102.9 million, reflecting strong operational performance.
Given that Casella Waste Systems, Inc. (NASDAQ:CWST) sales have grown at a 15.5% compound annual growth rate over the last five years, it underscores the resilience of its core business, consequently affirming long-term prospects. Annualized revenue growth of 18.8% over the past two years is above its five-year trend, affirming strong demand for its waste management solutions.
Here is what Alger Weatherbie Specialized Growth Fund said about Casella Waste Systems, Inc. (NASDAQ:CWST) in its first quarter 2024 investor letter:
“Casella Waste Systems, Inc. (NASDAQ:CWST) is a regional, integrated solid waste management services company that provides collection, transfer, landfill disposal, and recycling services primarily in secondary markets throughout the northeastern U.S. During the quarter, shares contributed to performance after the company reported strong fiscal fourth quarter results, as revenues grew 32% year-over-year. Solid waste revenues during the quarter were also strong, as steady price increases offset a slight decline in volumes. Further, management provided forward guidance that met analyst estimates, as management believes margins should continue to improve going forward. We believe Casella is well positioned for long-term growth, driven by strong pricing power, an attractive landfill footprint across the northeast U.S., and further expansion into the mid-Atlantic region.”
7. Commercial Metals Company (NYSE:CMC)
Market cap as of November 7: $7.15 Billion
Number of Hedge Fund Holders: 24
Headquartered in Irving, Texas, Commercial Metals Company (NYSE:CMC) engages in the manufacturing, recycling and fabricating of steel and metal products. It is one of the best recycling stocks to buy as it has been trending up, going by the 25% year-to-date gain. The impressive performance stems from increased investor confidence in the company’s performance and strategic initiatives, allowing it to deliver shareholder value consistently.
While being a big player in the recycling of steel and other materials, Commercial Metals Company (NYSE:CMC) combines the recycling and processing of scrap metals, resulting in fabricated, finished steel products that transform the steel industry. Consequently, the company has recorded strong demand for its products from the US construction-related end markets.
Commercial Metals Company (NYSE:CMC) delivered solid fourth quarter and full-year results for its fiscal 2024 on October 17 2024, with management reiterating fundamentals remaining strong based on customer conversations and continuing healthy downstream. Net earnings in the quarter totaled $103.9 million or $0.90 a share on net sales of $2 billion, supported by solid demand for CMC’s products in North America.
While trading at a price-to-earnings multiple of 14.49, Commercial Metals Company (NYSE:CMC) appears to be trading at a discount. Additionally, it rewards income-focused investors with a 1.15% dividend yield, which reflects its commitment to returning value to shareholders. The board has already declared a $0.18 a share dividend, to be paid on November 14, representing a 13% year-over-year increase.
6. LKQ Corporation (NASDAQ:LKQ)
Market cap as of November 7: $9.91 Billion
Number of Hedge Fund Holders: 31
LKQ Corporation (NASDAQ:LKQ) produces and recycles alternative and specialty parts of the auto industry. It distributes bumper covers, automotive body panels, lights, mechanical automotive parts, and accessories. While the stock is down by about 20% for the year, it remains one of the best recycling stocks to buy, going by the impressive financial results.
Its revenue in the third quarter, as reported on October 24, 2024, was up 0.5% year over year to $3.6 billion. Adjusted net income in the quarter totalled $230 million compared to $231 million in the same quarter last year. The company exited the quarter with $661 million in free cash flow, returning $200 million to shareholders by investing $125 million in stock repurchases and $79 million in cash dividends.
LKQ Corporation (NASDAQ:LKQ) also announced a strategic divestment of its subsidiary Elit Polska. This action aligns with the business’s plan to simplify its asset base. Additionally, LKQ and the German trade union Verdi have successfully reached a collective bargaining agreement to benefit approximately 5,000 of LKQ’s German workers.
While trading at a discount with a price-to-earnings multiple of 10, LKQ Corporation (NASDAQ:LKQ) is one of the best recycling stocks, as it has a 3.25% dividend yield, which is ideal for generating passive income. Additionally, the board has authorized a $1 billion increase in the stock repurchase program, raising the aggregate authorization to $4.5 billion which should allow it to return more value.
Artisan Partners’ Artisan Mid Cap Value Fund stated the following regarding LKQ Corporation (NASDAQ:LKQ) in its Q2 2024 investor letter:
“In the health care and consumer discretionary sectors, Baxter International and LKQ Corporation (NASDAQ:LKQ) were key detractors. LKQ is the dominant player in salvage/aftermarket collision parts distribution in North America, with over 70% market share. In addition to continued cost inflation, lower-than-expected collision claims in North America due partly to a mild winter resulted in disappointing quarterly earnings. What was already a cheap stock when we initiated our position in January of this year has become even cheaper. At a 10X P/E, shares trade at a distinct discount to their historical 10-year average of 14X and are also cheaper relative to LKQ’s auto parts retailer peers, which arguably have similar long-term growth profiles. LKQ isn’t a fast-growing business, but it can grow 2% to 4%, and given its dominant market share and mid-teens return on tangible capital, we believe it should trade at a higher valuation. Over the last decade, LKQ has also become the largest mechanical parts distributor in Europe. As is the case in North America, independent European mechanics value LKQ’s reliable distribution and competitive pricing. The European business has improved operationally over the last five years as LKQ has focused on the integration of its various acquisitions to drive margin and free cash flow improvements. LKQ operates in end markets with limited cyclicality as 90% of revenues are tied to non-discretionary spending and reliably has strong free cash flow generation. The company also meets our requirement for a sound financial condition as its debt load is manageable at 2X EBITDA due to its attractive free cash flow. We added to our position on weakness.”
5. Clean Harbors, Inc. (NYSE:CLH)
Market cap as of November 7: $14 Billion
Number of Hedge Fund Holders: 37
Clean Harbors, Inc. (NYSE:CLH) is a waste management company that provides environmental and industrial services. Its operations include collecting, transporting, and treating hazardous and nonhazardous waste. It is turning out to be one of the best recycling stocks to buy, going by the 36% year-to-date gain. Record-breaking earnings and revenue growth have been the catalysts for strengthening the company’s sentiments in the market.
Clean Harbors, Inc. (NYSE:CLH) has benefited from high demand for its environmental services because of an aggressive acquisition strategy that has strengthened its long-term prospects. In the third quarter, the company delivered profitable growth in all its operating segments. Consequently, revenue increased 12% year over year to $1.53 billion as net income increased 26% to $115.2 million as reported on October 30, 2024.
Additionally, the third quarter marked the tenth consecutive quarter of margin improvement, affirming why Clean Harbors, Inc. (NYSE:CLH) is one of the best recycling stocks to buy. With the overall demand for its waste management services remaining strong in North America, Clean Harbors should continue to enjoy robust growth and deliver more shareholder value.
Merion Road Capital stated the following regarding Clean Harbors, Inc. (NYSE:CLH) in its first quarter 2024 investor letter:
“During the quarter, I uncharacteristically built a position from nothing into our top holding. Clean Harbors, Inc. (NYSE:CLH) is the largest US hazardous waste management company. Before digging into CLH, I would like to diverge with a bit of personal history. In my early 20’s, I worked at Macquarie Bank, where our team was responsible for acquiring investments on behalf of our managed infrastructure funds and the bank’s balance sheets. One of my first assignments was the acquisition of a publicly traded municipal solid waste (MSW) management company (Waste Industries). While not technically infrastructure per-se, MSW has similar characteristics like being an essential service, operating regional monopolies, and controlling scarce assets. In any case, we paid something like 8-9x EBITDA, which was a premium to the then trading multiple. Waste Industries is now a small part of GFL Environmental, which trades at 12x EBITDA. And GFL is actually at a notable discount to its peers of Waste Management, Republic Services, and Waste Connections, which are at 15x. While hindsight is 20/20, buying into this asset class 15 years ago would have been a home run given their strong cash flow and multiple expansions.
While hazardous waste is not entirely comparable to their MSW brethren, CLH has many attractive attributes. They own and operate scarce assets, including nine incinerators and eight landfills, where new supply is limited by a complex permitting process and significant construction costs. They maintain vertically integrated operations that allow it to control waste from collection through transportation and disposal; this activity similarly requires specialized permits for which the company holds over 500. As the largest player in the space, CLH has a proven history of managing waste properly – a key consideration amongst customers given environmental ramifications. They also have scale benefits that include route-based efficiencies, capacity utilization, and the deepest breadth of service offering…” (Click here to read the full text)
4. Veralto Corp. (NYSE:VLTO)
Market cap as of November 7: $25.47 Billion
Number of Hedge Fund Holders: 42
Veralto Corp. (NYSE:VLTO) is one of the best recycling stocks to buy, as it is well-positioned to benefit from significant water scarcity, demand for quality water, and digitization. The company has carved a niche in providing water analytics, water treatment, packaging and colour services worldwide.
Likewise, it delivered solid third-quarter results on October 25, 2024, as it benefited from strong demand for industrial water treatment and recovery in the consumer packaged goods market. Consequently, sales were up by 4.7% year over year to $1.31 billion, with Veralto Corp. (NYSE:VLTO) achieving an operating profit margin of 23.4% and net earnings of $219 million. Following the better-than-expected results, the company has raised its full-year guidance with diluted earnings per share expected at between $3.44 and $3.48 from the previous guidance of $3.37 to $3.45.
Additionally, Veralto Corp. (NYSE:VLTO) has completed the acquisition of TraceGains, which is expected to bolster its packaging and colour solutions segment. The acquisition is expected to strengthen the company’s ability to provide greater value to consumer brands by helping digitize critical workflows and accelerate time to market.
The stock is fairly valued with a price-to-earnings multiple of 27, in line with the industrial sector average, while offering a 0.36% dividend yield. Recurring revenue growth, robust core sales growth, and gross margins make it one of the best recycling stocks.
Here is what Aristotle Capital Value Equity Strategy said about Veralto Corporation (NYSE:VLTO) in its Q2 2024 investor letter:
“In the fourth quarter of 2023, we received shares of the water and product quality company Veralto Corporation (NYSE:VLTO) when Danaher, a current Value Equity holding, spun off the business. After further assessing the now independently operated Veralto, we decided to exit our position. We believe our other holdings within the water value chain, including Xylem, American Water Works (our most recent purchase) and to some extent Ecolab, are more optimal investments.”
3. Republic Services, Inc. (NYSE:RSG)
Market cap as of November 7: $64.84 Billion
Number of Hedge Fund Holders: 48
Republic Services, Inc. (NYSE:RSG) is a leading environmental solutions player specializing in solid waste and recycling services. It is involved in the collection and processing of recyclable, solid waste and industrial waste materials. While the stock is up by about 20% for the year, the outperformance comes from investors reacting to the company’s solid underlying fundamentals characterized by strong customer retention and organic revenue growth.
A noteworthy contributor to Republic Services, Inc. (NYSE:RSG)’s strong performance is the Environmental Solutions (ES) segment. This division’s impressive performance demonstrates Republic Services’ strategic focus on expanding its service offerings beyond traditional waste management. Despite volume drops, the Solid Waste (SW) division was able to sustain strong margin performance. This fortitude in the face of difficult market circumstances demonstrates the business’s capacity for cost control and operational effectiveness.
Consequently, Republic Services, Inc. (NYSE:RSG) delivered solid third-quarter results, on October 30, 2024, with revenues increasing 6.5% year over year to $4.1 billion. It also offered a 17.5% year-over-year increase in earnings per share, totaling $1.8. The better-than-expected results came as Republic Services benefited from innovative recycling and waste collection technology. The development of polymer centers and Blue Polymers and advancements in fleet electrification also continued to boost top-line growth.
Republic Services, Inc. (NYSE:RSG) is one of the best recycling stocks to buy, according to analysts, on planning $200 million worth of acquisitions, which is expected to generate up to $834 million in shareholders’ long-term returns. The development of the Las Vegas Polymer Center and an Indianapolis facility is expected to boost earnings next year. The stock continues to return value with a 1.17% dividend yield.
ClearBridge Investments stated the following regarding Republic Services, Inc. (NYSE:RSG) in its Q2 2024 investor letter:
“We added two new names to the portfolio in the quarter. Republic Services, Inc. (NYSE:RSG) is a waste disposal company in the industrial sector whose services include nonhazardous solid waste collection, waste transfer, waste disposal, recycling and energy services. It is a stable-through-the-cycle compounder in a consolidated industry. The company’s end market is resilient, which gives us some confidence in the stability of its earnings through a recession. In the next few years, cash flow should grow at the high end of the range as Republic Services benefits from high-returning sustainability investments in polymer recycling and renewable natural gas, which also improve the company’s emission and circularity profile.
Republic Services continues to set ambitious goals around sustainability targets, such as increasing its renewable energy generation by 50% through the beneficial reuse of biogas. In addition, its 74 recycling centers process five million tons of materials per year and include a major polymers centre for plastics. Notably, it is the first North American waste and recycling company with an emissions reduction goal approved by the Science-Based Targets initiative (SBTi).”
2. Waste Management, Inc. (NYSE:WM)
Market cap as of November 7: $87.69 Billion
Number of Hedge Fund Holders: 49
Waste Management, Inc. (NYSE:WM) provides environmental solutions to residential, commercial, industrial, and municipal customers. It offers collection services, including picking up and transporting waste and recyclable materials from where they were generated to a transfer station material recovery facility (MRF).
Waste Management, Inc. (NYSE:WM)’s investment in sustainability initiatives in recycling automation and renewable natural gas makes it one of the best recycling stocks to buy. While the stock is trading near its all-time highs after gaining about 19% year to date, it has produced a total return of 57.3% over the past three years on generating impressive returns from the collection, transporting and processing of commercial, industrial, and residential waste.
While its sales growth stalled at the height of the pandemic in 2020 and 2021, they have seen a significant rebound over the past two years, leading to substantial margin improvement. Waste Management, Inc. (NYSE:WM) delivered solid third-quarter results on October 29, 2024, with earnings per share of $1.96, above consensus estimates of $1.88. Revenue in the quarter was up 7.9% year over year to $5.61 billion.
Waste Management, Inc. (NYSE: WM) benefits from steady cash flow from a dependable clientele because waste is essential to life. It gains over time from both an expanding economy and a growing population. Waste, consumption, and production all rise with population and economic output. Consequently, the company expects its full-year revenue to grow by 6% from a previous guidance of 5.75%.
It has also hiked its free cash flow to between $2.1 billion and $2.2 billion from a previous guidance of $2 billion to $2.15 billion. The expected FCF growth should allow the company to continue rewarding investors with dividends that currently yield 1.40%.
1. Waste Connections, Inc. (NYSE:WCN)
Market cap as of November 7: $46.34 Billion
Number of Hedge Fund Holders: 50
Waste Connections, Inc. (NYSE:WCN) is a waste management company that provides nonhazardous waste collection, transfer, disposal, and resource recovery services. It owns and operates transfer stations that receive, compact and/or load waste to be transported to landfills or treatment facilities.
The company’s competitive edge, which has strengthened its prospects in the solid waste and recycling services sectors, stems from its aggressive merger and acquisition (M&A) strategy, which has earned it a solid reputation. Consequently, it’s been able to diversify its service offerings and increase its market presence. With more acquisitions anticipated to close later this year, the company has acquired companies with annualized revenues of about $500 million.
Thanks to the aggressive merger and acquisition strategy, Waste Connections, Inc. (NYSE:WCN) delivered solid third-quarter results on October 28, 2024, with net income increasing 34.5% yearly to $308 million. For the nine months of the year, the company has registered a 27.9% increase in net income to $813.6 million. Waste Connections is well positioned for another increase in its full-year earnings owing to solid waste operations pricing and growth, which affirms why it is one of the best recycling stocks to buy.
Management expects innovative approaches to continue driving employee engagement and retention improvements, leading to above-average underlying margin expansion in solid waste collection and increased shareholder value. While trading at a price-to-earnings multiple of 23 slightly lower than the Industrials sector average P/E of 27, Waste Connections, Inc. (NYSE:WCN), rewards investors with a 0.71% dividend yield.
While we acknowledge the potential of WCN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WCN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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