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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (49517)	9/22/2012 5:45:31 PM
From: E_K_S	Read Replies (2) of 78748

Re: Perma-Fix Environmental Services Inc. (PESI) US Ecology, Inc. (ECOL) Clean Harbors, Inc. (CLH) Waste Management, Inc. (WM) I was surprised that their margins are so low. Environmental waste disposal companies typically have high operating margins. When I checked the competitors (the ones YAHOO lists) except ECOL operating margins were quite low. I am not sure if it is the nature of their Government contracts for nuclear waste disposal but for me to operate with this material, such low margins is not worth the risk. ECOL is one I have on my watch list and they are selling near their 52wk high. The only positive I see for PESI is their low debt profile. ECOL has done well and have kept their long term debt at 2x annual net income (similar to PESI). PESI does not have the exposure to the other commercial hazardous waste streams like ECOL. It helps to not be hand cuffed to one supplier which may be the reason for their low margins. In a slow growth environment, this sector is one I would want to own. Mainly because these companies can generate a large amount of free cash flow. I would still want to pay no more than a 15 PE for a well run company and a 10 PE would be a "value" buy. So for me, PESI would not make my list. ECOL has a good history but is still expansive at $20.69/share. I might pay up to $17.50/share for ECOL but would love to own it around $12.00/share. ECOL is a perfect size as they can still grow their businesses as their market cap is relatively low at $377M. Clean Harbors, Inc. (CLH) is another one you might want to look at but it's still about 30% too high. They have a similar low debt profile, are quite profitable and appears to dominate this sector (gross margins > 30%). Waste Management, Inc. (WM) is another much larger Cap company is getting back to my buy target too ( @ $30.00/share or lower). It is not really a pure play in the environmental hazardous waste sector but could be a good long term buy is bought under $30.00/share ( around 13 Forward PE). EKS

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