Covanta: Energy from Waste

06/07/2017 2:54 am EST

Focus: ENERGY

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Based in Morristown, New Jersey, Covanta (CVA) is a holding company that provides waste management and energy services to municipalities in the United States and Canada, notes Mark Skousen, editor of High-Income Alert.

The company owns and operates infrastructure to convert waste to energy and sells metal recovered during the energy-from-waste process.

It owns and operates 42 of these energy-from-waste facilities (where it processes 20 million tons annually), five additional energy generation plants, 17 transfer stations, 15 environmental services facilities and a regional metals recycling facility.

The company’s business model offers several advantages. It operates in the fast-growing renewable energy business with proven environmental benefits. Its operations are concentrated in the Northeast, where barriers to entry are high.

It has securely contracted revenue coming from multiple sources. (Many are long-term deals with utilities.) Its electricity is sold at high demand points. It also generates substantial and predictable cash flow.

Covanta handles over 400 million tons of waste annually and controls more than 70% of the waste-to-energy market.

Despite these many benefits, the stock is actually down 12% over the past year. Why? Because Covanta missed estimates badly in each of the last two quarters.

But, as I often say, look forward, not backward. A significant rebound is coming in the months ahead -- and the insiders know it.

In the last few weeks, director Michael Ranger bought 40,000 shares, an investment of $583,000. On the same day, director Robert Silberman also purchased 34,000 shares, an investment of $489,000.

Wall Street is beginning to warm up to the stock, too. Robert W. Baird and Wedbush just announced “Outperform” ratings.

And public records reveal that several institutional investors -- including Manning & Napiers, Wellington Shields Capital Management and Advisors Asset Management -- are piling into the stock, too.

All signs point to this stock trading higher in the weeks ahead. And you’ll collect a substantial 6.8% dividend yield here, too. So pick up Covanta Holding at market today. And place a sell stop at $11.50 for protection.

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