Ecolab : Food, Energy, and Water

03/20/2014 8:00 am EST

Focus: STOCKS

Stephen Leeb

Founder and Research Chairman, Leeb Group

A new addition to our growth portfolio is a global leader in some of the world's fastest-growing industries, including sanitation, water treatment, and the efficient use of chemicals in unconventional energy, explains Stephen Leeb, editor of The Complete Investor.

We began watching Ecolab (ECL) a few months ago, and we promised that if this richly-valued stock became more reasonably priced, we would recommend it. Now we're getting our chance.

In the two earnings reports since then, profits were above expectations, leaving both the nominal and relative multiple lower.

Those stronger profits, in turn, suggest that annual profit growth could accelerate to close to 20% over the next five years, effectively pushing down its PEG ratio to around 1.3, well within the parameters of top growth companies.

The industries in which Ecolab plies its trade currently represent a combined market of around $100 billion, and they're growing at an annual clip averaging in the low- to mid-teens or better.

Within just the next two to three years, the Chinese market alone in these industries should climb to $15 billion from below $10 billion today. With a share in the low-teens across all these markets, Ecolab is the leading player.

Ecolab gets high marks for two major acquisitions made this decade. Nalco, one of the world's largest water treatment companies. It is hard to overstate the global need for water treatment.

The more recent and less expensive acquisition was of Champion Technologies, which produces specialized chemicals essential to the energy industry, especially in energy production and transmission.

Ecolab's size, and focus on research, have resulted in a stream of products for markets intertwined with water and energy, but, potentially, even bigger—food and food services.

Safe food handling practices and the organization of energy and water management across national borders for major food providers add up to a potential market approaching $50 billion by the end of the decade. The intertwining of food, energy, and water, will work mightily to the company's advantage.

We expect investors to benefit from a combination of rising profits and, at least, slightly rising valuations. In our view, Ecolab is one of the best-situated long-term growth investments around.

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