In recent weeks, recession speculation has intensified, and as a result, more analysts and experts are offering up equity and exchange traded fund ideas that could prove durable if economic contraction sets in.
Predictably, many equity-based, recession-buffering ideas are defensive. Think sectors such as consumer staples and utilities. However, high inflation is pinching both of those groups, indicating that investors may want to rethink how to be defensive in a recession.
Enter the VanEck Vectors Environmental Services ETF (EVX). EVX, which follows the NYSE Arca Environmental Services Index, is arguably a hidden gem among recession-proofing ETFs, and that’s the case for a simple reason: Trash. As in, exposure to waste removal companies.
“Waste disposal company Republic Services could act as an hedge against inflation and as a safe haven during economic downturns, according to Deutsche Bank,” reported Sarah Min for CNBC. “Analyst Kyle White upgraded Republic Services to a buy from hold, saying in a Thursday note that the company has strong pricing power and defensive characteristics against an increasingly challenging economic backdrop.”
For investors considering EVX, which turns 16 years old in October, bullish analyst commentary on Republic Services (NYSE:RSG) is relevant because that stock ties with rival Waste Management (NYSE:WM) as EVX’s largest holding. Shares of both trash haulers command weights of 11.1% in EVX.
“We are upgrading Republic Services (RSG) to a Buy rating as it (i) is an inflation hedge in today’s environment, (ii) is a safe haven in market downturns and (iii) provides compelling earnings growth especially on a risk adjusted basis,” wrote Deutsche Bank’s White in his report.
To be sure, trash stocks aren’t perfect. The average year-to-date decline for Republic Services and Waste Management is about 13%. However, that’s far superior to the nearly 23% shed by the S&P 500. Waste Connections (NYSE:WCN), another trash hauler that’s a member of the EVX portfolio, is also handily outperforming the broader market this year.
Something that’s often overlooked regarding trash haulers is that these companies, including the ones residing in EVX, have inroads into renewable energy. For example, Republic Services and Archaea Energy (NYSE:LFG) recently announced plans to develop 39 renewable gas projects across the country.
“The partnership, the country’s largest RNG portfolio build-out to date, will convert landfill gas into pipeline-quality RNG that can be used for a variety of applications to displace gas from fossil fuels. The initiative is expected to generate substantial progress towards Republic’s long-term sustainability goal to beneficially reuse 50% more biogas by 2030,” according to a statement.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
