Waste Management, Inc. (NYSE:WM) is the nation’s largest waste management and environmental services company.
Certainly, this is not the sexiest business sector out there. But, you make money from stocks with profitable businesses, regardless of what business that actually is. As investors, we’re looking for stocks that are making money and have a path to making even more of it.
In that case, WM is a very compelling, if not sexy, stock.
First, Waste Management has a huge moat. Basically, that means it is very difficult for a competitor to enter into the waste services business and compete with WM. At this point, the company’s size and strength make it the major player in the sector, and even No. 2 Republic Services, Inc. (NYSE:RSG) isn’t a real challenge to WM’s footprint.
Second, there is no sign that U.S. businesses and consumers will be creating any less trash. On the contrary, as the economy improves, it’s more likely that there will be more. As construction expands, so does all the trash from construction. Also, as wages increase, so does consumption.
A strong economy is a very bullish sign for WM stock.
A strengthening economy is also helpful because WM sells its recycled materials (metals, plastics, etc.) to various manufacturers around the world. Prices for these materials have not rebounded to pre-2008 levels, but they are trending up, and that’s another avenue for growing revenue and earnings.
Third, as illustrated with its recycling operations, Waste Management is very adaptable when it comes to exploiting its trash for treasure. Another creative source of revenue that’s continuing to grow is landfills. Decaying trash produces methane, which WM captures and converts to electricity to sell, or converts it into liquefied natural gas. The company even has a deal with Oneok Partners LP (NYSE:OKS) to put the gas into Oneok’s pipeline system.
OKS operates a distribution network in Oklahoma, Texas, New Mexico, Kansas and some of the Rocky Mountain states. If WM can partner with other pipeline companies, it could be a significant business.
Bottom Line for WM Stock
Some analysts believe that Waste Management has gotten ahead of itself, given the fact that WM stock is trading at a price-to-earnings ratio of 28, and this isn’t exactly a swiftly-growing. But, it’s the hidden value inside its relatively simple facade that adds value to WM stock.
What’s more, if there’s a correction in the markets, Waste Management is the kind of steady stock that will be a source of safety for investors looking for downside protection. And, its 2.3% dividend may not be sexy, but like the company, it’s attractive and very reliable.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
