We recently compiled a list of 8 Most Profitable Industrial Stocks to Invest In. In this article, we will look at where Clean Harbors, Inc. (NYSE:CLH) ranks among the most profitable industrial stocks.
Total US industrial net absorption in H1 2024 came in at 67.1 million square feet, reflecting a significant decline from the historic peak in absorption in 2021, when it was 749.3 million square feet for the year, as per historical data provided by CoStar. However, amidst the uncertainty regarding the economic outlook for H2 2024, the current NAIOP Industrial Space Demand Forecast expects that the national industrial real estate market should continue the trend of positive net absorption.
As per NAIOP, the Commercial Real Estate Development Association, total net absorption for H2 2024 is expected to be ~114 million square feet. The full-year absorption in 2025 is expected to be ~249 million square feet, and absorption in the first half of 2026 is forecast to be ~154 million square feet. With the expectation of lower rates moving forward, the potential for increased industrial leasing activity in H2 2024 and onward remains significant. With interest rates trending lower, businesses are expected to reaccelerate their capex plans that have slowed since 2022’s increase in rates.
Deal Activity in The Industrials and Services (I&S) Sector
PwC reported that the industrials and services (I&S) sector should see a steady pace of deal activity moving forward. Despite the market challenges, such as elevated interest rates and regulatory concerns, both buyers and sellers are resorting to the M&A market in a bid to drive further growth and value creation. As per PwC, in the current environment, companies continue to evaluate portfolio performance to determine whether or not they should divest non-core assets to finance strategic and corporate investments.
Deal activity in Aerospace & Defence should accelerate in H2 2024 and 2025. M&A is expected to focus on small to midsize acquisitions instead of larger deals, with companies seeking to address strategic and labour talent gaps and secure supply chains and production capacity via vertical integration. The commercial aerospace sector should continue to grow in H2 2024. PwC expects continued activity in the aircraft aftermarket segment, courtesy of aging military and commercial fleets.
Next, deal activity in the industrial manufacturing sector should accelerate in the near to medium term. This is expected to be driven by increased investor optimism about the industry and stability in the broader macroeconomic environment. Decarbonization and other environmental considerations are expected to remain the focus areas. PwC mentioned that there is a strong interest in manufacturing processes pivoting from metals to more sustainable raw materials.
For Industrial Decarbonization, International Cooperation Is a Must
As per the World Resources Institute, the industrial sector makes up for more than a quarter of total global GHG emissions, with cement and steel production making up for most of the part. In the US, the federal government announced a $6.3 billion investment, which is focused on low-emission industrial demonstration projects. The selection has been done across industrial subsectors, such as decarbonizing cement and steel plants. Also, the European Council signed off on new regulations in a bid to reduce emissions and accelerate efficiencies in industry.
World Resources Institute believes that international collaboration remains a key in achieving climate goals in heavy industries. This is because industrial products are traded throughout borders to cater to global value chains. Shared innovation and learning remain important when it comes to accelerating the deployment of decarbonization technologies.
Our Methodology
To list the 8 Most Profitable Industrial Stocks to Invest In, we used a Finviz screener to screen for stocks from the industrial sector. After getting the list of 30-40 stocks, we narrowed our list by choosing the ones having positive net income on a TTM basis and a 5-year net income CAGR. Finally, the following 8 most profitable industrial stocks were ranked in ascending order of their hedge fund sentiments, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Clean Harbors, Inc. (NYSE:CLH)
Net Income on TTM Basis: $392.8 million
5-Year Net Income CAGR: 35.90%
Number of Hedge Fund Holders: 37
Clean Harbors, Inc. (NYSE:CLH) offers environmental and industrial services in the US and internationally.
Market experts believe that Clean Harbors, Inc. (NYSE:CLH) continues to capitalize on the increasing demand for waste management and recycling. The company has a strong project pipeline, which is expected to continue into 2025. Wall Street believes that the Kimball and Baltimore expansions and recent mergers and acquisitions, which include HEPACO, should provide self-driven growth. Clean Harbors, Inc. (NYSE:CLH)’s recent expansion of the borrowing capacity with a $600 million credit facility exhibits a commitment to maintaining a strong and stable financial foundation.
Moreover, the experts remain quite optimistic about the company’s acquisition of HEPACO. The acquisition will be highly synergistic with healthy margin improvement potential. Clean Harbors, Inc. (NYSE:CLH) expects to achieve its targeted cost synergies in areas like subcontracting, branch network, asset rentals, transportation and procurement.
In H2 2024, Clean Harbors, Inc. (NYSE:CLH) is expected to witness healthy demand and momentum in its core disposal, recycling, and service businesses. In Environmental Services, its record backlog, healthy project pipeline, and demand for the broad suite of services place it well for continued growth.
Needham & Company LLC upped its price target from $235.00 to $274.00, giving a “Buy” rating on 1st August. Merion Road Capital, an investment advisor, released its Q1 2024 investor letter. Here is what the fund said:
“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 Connectionsthat 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 cashflow and multiple expansion.
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 cost. 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 maintains 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)
Overall CLH ranks 6th on our list of the most profitable industrial stocks to invest in. While we acknowledge the potential of CLH as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CLH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.