There I was minding my own business reading “Invasive termites in a changing climate: A global perspective” by Grzegorz Buczkowski and Cleo Bertelsmeier (of Purdue University and University of Lausanne, respectively) when I got to the maps and a stock picking bell went off.
All three of the invasive species of termites that the authors chose to map in the main paper, C. formosanus, R. flavipes, and M. darwiniensis, showed major range expansion in regions of the United States ranging from the south to the southeast to an area from Illinois to Quebec because of the influence of global warming.
Home owners pay people to rid them of termites, I knew having been through the process with my parents in the 1923 wooden house that my grandparents had built. More termites and more termite species over a larger range would mean more business for somebody right?
Turns out that somebody, at least in the United States, is likely to be Terminex, a franchise network owned by Service Master Global Holdings. And, in addition, Service Master, is in the business of disaster and flood restoration through its Servicemaster Restore unit.
Today, December 16, I’m adding Service Master (SERV) to my long-term 50 Stocks Portfolio.
And I’m using this pick to close off Stage 1 in my December 14, 2018 Special Report: Global Warming and your portfolio: Is your portfolio ready?” I’m finally ready to move onto Stage 2 of those global warming picks. It’s taken me this long, sorry, to get my thinking about global warming and investing trends simple enough so it made sense to me at a length that I could handle at even the longer end of the length spectrum on JubakAM.Com. I’m aiming to get the first Stage 2 Global Warming post and picks up within a week. (You can find the December 2018 version with this Service Master addition, in the Special Reports section of JubakAM.Com.)
In Stage 1 of my December 2018 Special Report I laid out what we knew about the potential impact of global warming on the global economy: At the Katowice, Poland, United Nations climate summit one investment house, Schroders, put the potential for global economic losses at $23 trillion a year. To put that number in context that would be four times the size of the 2008 global financial crisis. And something like 25% of total global GDP. The size of the global economy was “only” $80 trillion in 2017.
I noted that I thought that estimate might be a best case scenario. I believe that the world has dragged its feet for long enough so that addressing the problems of global warming will be more difficult, more expensive, and more wrenching than would have been the case if the globe had moved on these problems in a concerted way 20 or even just 10 years ago. I don’t want to belabor the dismal news on global warming so let these two bits of news sum up the case. In September the Trump Administration, no friend to climate science, issued an environmental impact statement that predicted that the planet will warm by a disastrous seven degrees by the end of the century. A rise of seven degrees Fahrenheit, or about four degrees Celsius, would dissolve many coral reefs in increasingly acidic oceans. It would put parts of Manhattan and Miami underwater. Extreme heat waves would routinely ripple across large parts of the globe. (I’d note that this assessment was offered by the Trump administration as part of legal argument for freezing fuel efficiency standards after 2020–you see, the planet is already doomed, the thinking goes in the White House.) A recent report from the United Nations has concluded that the world is well behind on the promises to cut greenhouse gas emissions made at the Paris climate meeting. With global emissions still increasing as of 2018, it is unlikely they will reach a peak by 2020. Yet such a peak, required before any decline can occur, is a near-mandatory outcome if the world is to have a any chance of achieving the Paris agreement’s most important goal: limiting the planet’s warming to “well below” 2 degrees Celsius (3.6 degrees Fahrenheit) above preindustrial levels.
Which is why Stage One in addressing global warming will be huge infrastructure programs designed to protect coastal areas increasingly at risk, to provide water to areas that a changing climate has left dry, and to slow the transformation of the world’s agriculture.
Stage One will be, in many ways, an admission of failure. But it will involve massive spending (by those wealthy countries and areas that have the cash) to fend off some of the consequences of doing not enough for too long.
And you can invest in companies that will profit from Stage 1. On December 14, 2018, I named Vulcan Materials (VMC), as my “concrete” play of choice and added the shares to my Jubak Picks and long-term 50 Stocks portfolios. I also named Xylem (XYL), a water management company that has been a long term member of my Jubak Picks Portfolio; wind turbine maker Vestas (VWDRY); lithium producers, lithium producer Albermarle (ALB), biopharmaceutical water company Danaher (DHR), all also Jubak Picks stocks. And I put a watch this stock note on United Rentals (URI), the top company in the rental construction market.
Now I’m adding Service Master to this Stage 1 list. The shares fell off a cliff in November 2019, falling to $33.98 on November 14 from $56.14 on October 21 as on November 5 the company reported disappointing earnings–the company just wasn’t efficiently turning revenue growth (7% in the third quarter) into earnings (down $9 million in the third quarter.). The company recognized the problem (which is not the same as fixing it but margins are creeping upward) and the stock has been gradually recovering. The shares closed up 1.07% today, December 16 to $37.70. Morningstar calls Service Master 16% undervalued.
Termites (the Terminex unit) make up the biggest chunk of the company’s revenue at $189 million in the third quarter against total company revenue of $578 million. Service Master Brands, which includes the restoration services business, saw a 13% increase in revenue in the third quarter of 2019 year over year as the company continues to expand its initiatives in healthcare cleaning and disinfection.
