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Turning Trash into Treasure

Friday, 2 Mar 2007 | 6:25 PM ET

With the market acting the way it has been, you want good defensive plays. You need stocks that will deliver consistently strong earnings no matter what happens to the economy, no matter what the Fed does. If you’ve been keeping pace with the show this week, you’d know to look for these stocks at the supermarket or the drug store. But there’s another sector worthy of your attention – waste.

As investments, these stocks are great for two reasons: They’re recession proof, and they thrive under government regulation. And with the Democrats in a good position to take the White House in 2008, companies like Clean Harborsand Allied Waste are poised to profit.

Clean Harbors is an end-to-end hazardous waste play. They’ll package, transport and then store or dispose of your hazardous waste as needed. The company pushed through a 3.6% price increase across the board two weeks ago. Clean Harbor customers can’t fight those price increases, and you’ll see them regardless of how weak the economy gets.

The best thing about Clean Harbors is that the stock is a battleground. As of January, 14.5% of the float had been sold short, and the shorts aren’t stupid. They’re in for a squeezing, though, because Fidelity has been buying. And when FIDO takes a position, it’s a big deal. It moves the stock. Already they’ve gotten their stake up to 15% – and with the newly anointed status of defensive stocks, Cramer thinks they’ll keep buying.

Clean Harbors reports on Tuesday, so Cramer suggests that you might want to either wait until after the quarter, or at least only put on part of your position before they report.

So far, Cramer’s waste recommendations have been those companies that focus mainly on hazardous waste -- Stericycle, American Ecology, Clean Harbors – but Allied Waste is just a plain-old garbage company. Still, it is the second-biggest non-hazardous waste hauler after Waste Management, and Cramer likes Allied better.

The reason, beyond Allied Waste’s fabulous last quarter, is that this is a de-leveraging story. Allied Waste is part of the virtuous circle of debt reduction that Cramer has talked about before. It uses its cash to pay down debt, which gives the company more cash in the future because there’s less interest, which they use to pay down even more debt and so on.

The standard rules of garbage stocks still apply. Allied Waste has the pricing power we expect from any company in an industry that in the popular imagination has associations with the mafia. Last quarter they had pricing growth of 4.8%, and they expect to keep up the price hikes through the rest of the year.

Garbage isn’t glamorous, but it’s reliable.

Bottom Line: Right now, there’s nothing Cramer likes more than reliability, that’s why he’d be a buyer of Clean Harbors or Allied Waste.

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Questions? Comments? madmoney@cnbc.com

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