Disaster Capitalism: Money From Eco-Mayhem
You don’t have to be a tree-hugging, Birkenstock-wearing, granola-eating hippie to value environmentalism. Investors can reap outsized profits from companies that are dedicated to global ecology.
Environmental, social and governance (ESG) factors are gaining prominence in the strategic decisions of Wall Street and corporations. Not because financial and corporate leaders have suddenly become saints, but because ESG is good for the bottom line.
Consider BlackRock (NYSE: BLK), the world’s largest asset manager. With more than $7.4 trillion in assets under management, BlackRock recently launched several new exchange-traded funds (ETFs) that track ESG-focused companies. No one ever accused the top managers at BlackRock of being sentimental bleeding hearts.
A company’s ESG score has emerged as a major evaluation metric with the public, financial analysts, and investors. Research shows that ESG practices actually enhance efficiency and profitability.
Enter Tetra Tech (NSDQ: TTEK), a leader in helping public and private sector organizations cope with various types of environmental challenges.
With more than 20,000 full-time employees worldwide, Tetra Tech provides engineering and technical services for the water, energy, infrastructure, and natural resources sectors. The company specializes in risk mitigation and damage control related to climate change.
As environmental disasters grow in frequency and intensity around the world, Tetra Tech is the “go-to” environmental company. (Click here for Tetra Tech’s latest ESG goals and report card.) Over the past 12 months, Tetra Tech’s stock has risen 57.4%, compared to 38.1% for the S&P 500. I believe that further market-beating gains for TTEK lay ahead.
Headquartered in Pasadena, California, Tetra Tech’s services are sought by commercial and governmental decision-makers who find themselves on the front lines of crisis. Environmental and humanitarian catastrophes wrought by climate change (e.g., this summer’s droughts and wildfires in the U.S. West) are vivid examples.
The extreme heat that gripped the Pacific Northwest last week almost certainly would not have occurred if not for global climate change, a scientific group reported Wednesday.
Whether the culprit for the rising incidence of scorching heat and “super storms” is man-made climate change or natural cycles, severe and unpredictable weather is a new global reality that governments appear helpless to prevent. That makes Tetra Tech the beneficiary of a secular trend.
The era of water scarcity…
Tetra Tech also is a play on the global water crisis, as pollution, overcrowding, urbanization, and the heightened frequency of droughts make potable water an increasingly scarce and valuable commodity. Unsafe water sources are responsible for 1.2 million preventable deaths around the world each year.
According to recent studies by the scientific journal Nature, the world’s stores of groundwater, which accumulate over millennia in aquifers, are vanishing at an alarming rate. The result is persistent demand for reliable sources of clean, potable water.
According to the consultancy Global Water Intelligence, there’s a huge gap in the U.S. between expected expenditures and actual needs for water infrastructure (see chart below, with years 2021-2040 as projections).
The American Society of Civil Engineers (ASCE) recently released its 2021 Report Card for America’s Infrastructure, a comprehensive assessment of 17 major infrastructure categories compiled once every four years. The nation’s grade point average this year: C-. Ordinarily, a weak grade would be disappointing, but for investors, it’s actually good news. These conditions further justify passage of President Biden’s proposed $1.2 trillion infrastructure bill, now pending in Congress.
Infrastructure spending enjoys a bipartisan coalition of support, because it entails state and local spending that both red and blue states require.
The ASCE found that the country’s total infrastructure needs over the next 10 years total nearly $6 trillion, but after considering various sources of committed funding, the gap to meet those needs is $2.59 trillion.
It all adds up to huge, long-term demand for Tetra Tech’s highly specialized services. In the meantime, Tetra Tech continues to pick up lucrative contracts from federal and state agencies for environmental remediation.
With a market cap of $6.7 billion and several quarters of robust operating results under its belt, Tetra Tech possesses the financial wherewithal to aggressively compete in the construction bidding wars that typically emerge in the wake of natural disasters. It’s also poised to pick up a big slice of new infrastructure spending, in the U.S. and overseas.
Unlike its peers, Tetra Tech’s core competency is remediation and risk management, making it a purer play on these incidents as well as a company with more room for growth. By way of contrast, major competitor Fluor (NYSE: FLR) has fingers in many different types of construction projects.
What’s more, the world of environmental construction is governed by longstanding relationships. Through its already established presence in the corridors of Capitol Hill and various overseas outposts, Tetra Tech can leverage its proven track record to scoop up its share of contract spoils.
The average analyst expectation is for Tetra Tech to rack up earnings growth of 15% over the next five years (on an annualized basis). The consensus projection is for the company’s stock price to appreciate by at least 24% over the next 12 months. As a provider of essential services, the company is buffered against economic cycles and market corrections. Yes, it’s possible to do well, by doing good.
Editor’s Note: I just showed you how to profit (with a clean conscience) from environmental catastrophes, but there are other types of mayhem that can benefit investors.
My colleague Jim Pearce, chief investment strategist of Mayhem Trader, is an expert at profitably exploiting market imbalances.
In fact, Jim has pinpointed a group of tech stocks that are particularly vulnerable. By following his trading methodology, you can reap huge gains from their day of reckoning. To learn more, click here now.