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The investment appeal of the larger companies in the environmental services industry has been enhanced by the merger activity among the leaders of three industry segments. However, internal growth among landfill operations and waste hauling has been limited to less that 5% in the last serveral years and results at water-treatment companies have been mixed. The most appealing stocks in this industry for the next three to five years are those of the dominant companies.

The environmental industry stocks have improved in 1994, with different segments of the industry performing better than others. Waste hauling and landfill operations are profiting from increased landfill tipping fees and the rising amount of waste volume handled. The hazardous waste area offers a mixed bag of investment opportunities, as solid waste disposal costs rise higher than liquid wastes. Water purification services are growing more popular.

Environmental industry securities have been hurt by weak prices caused by overcapacity at landfills. But the supply/demand differential has begun to narrow, except among hazardous waste companies. The latter are being hurt by the growing use of inexpensive cement kilns. At the opposite extreme, water treatment firms are doing well. The three- to five-year stock potential of the group as a whole is positive.

Overall performance in the environmental industry has dropped from the record earnings levels set in 1990. Traditional hazardous waste companies have faced competition from new technologies and an industrial move toward liquid waste. The outlook for solid waste disposal appears to be improving slightly after three years of reduced earnings. Currently, however, the only advisable investment within the environmental industry is water purification services.

The diverse environmental services industry offers good investment options in the water treatment and air purification sector but as a whole is not timely. The hazardous waste business suffers from overcapacity, while municipal recycling operations have brought down margins for solid waste disposal firms. Water treatment firms with favorable prospects out to 1997-99 include Air and Water Technologies, Wheelabrator's and Ionics.

The environmental services industry presents a mixed picture to the potential investor. Collectively, the industry's stocks have been falling since 1990. However, long-term prospects are brighter in areas such as waste-to-energy conversion, lead by Wheelabrator Technologies and Ogden Projects. Meanwhile, hazardous waste disposal companies are suffering because increasingly clean production methods are eliminating the need for them.

Safety-Kleen Corp. is expected to be a beneficiary of Environmental Protection Agency rules requiring collection and safe disposal or recycling of used motor oil. The company says it will grow 20% annually through 1995.

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