For investors looking to inject stability and security into their portfolios amid these turbulent times, Waste Management (NYSE:WM) is about as good a pick as any in the market. The largest provider of waste management services in North America — ranging from garbage collection and disposal, to recycling, to dumpster rentals — checks off every box risk-averse, income-oriented investors would want checked off. Here’s a quick rundown on the highpoints of WM stock.
Huge competitive moat? Check.
Long history of sustainable growth? Check.
High visibility into sustained growth over the next several years? Check.
Juicy dividend? Check.
Big cash flows? Strong margins? Check and check.
In other words, WM stock is the “dream” stock for risk-adverse, income-oriented investors. Sure, it won’t deliver you huge, 20%+ returns in a year. But it will deliver nice 5%+ returns plus a 2% yield, with minimal risk addition.
Sound like a good value prop if you’re an investor seeking to minimize risk? It is.
Here’s a deeper look.
WM Stock Has Rock Solid Fundamentals
From head to toe, Waste Management is supported by rock-solid fundamentals.
The company provides necessary services with enduring and stable demand that will withstand mild recessionary factors. Garbage collection and disposal is the sort of stuff which will be the very last thing a commercial or residential complex will cut when budgets get tight. That’s why the company has grown revenues at a steady, 2%+ compounded annual growth rate since 2010.
Plus, Waste Management provides those services to a diverse customer base (ranging from the public sector to retail trade, to manufacturing, to healthcare, and essentially every other industry imaginable) across diverse geographies (the company serves 20 million customers across most of North America). This significant customer and geographic diversification add further recession resilience to the business model.
This recession resilience is shining bright this year. Amid the Covid-19 pandemic, while revenues across S&P 500 companies are expected to drop 15% year-over-year, Waste Management projects to report just a 5% revenue decline.
Waste Management is also protected by a huge competitive moat in the form of a hard-to-replicate waste management infrastructure. In order to replicate WM’s business model, you need a fleet of dumpster trucks, a bunch of drivers, access to huge landfills and recycling centers across the country, and partnerships across various industries.
Margins are strong. Cash flows are big. The balance sheet is well fortified. The dividend has a 20-year track record of sustainable growth.
Net net, Waste Management is a dream company for investors looking for mild growth with mitigated risk.
Waste Management Stock Is a Solid Buy
Because of Waste Management’s rock-solid fundamentals, WM stock is a solid buy for risk-averse investors who aren’t looking for 20%+ returns.
Waste Management realistically projects as a low single-digit revenue grower over the next several years. Margins will expand on the back of mild positive operating leverage. Earnings per share will rise at a steady mid-single-digit pace.
This steady mid-single-digit profit growth will drive WM stock higher at a mid-single-digit annualized pace. Plus, investors will rake in a 2% dividend yield every year.
In sum, then, WM stock projects to return about 7% to shareholders per year over the next several years.
Sure, that’s a far fetch from the 20%+ gains big tech stocks are seeing right now. But those big tech stocks are volatile. They are risky. And they aren’t for everyone.
WM stock, on the other hand, is a low-growth, low-risk, low-volatility pick that’s perfect for investors who want to cling to stability amid these turbulent times.
Bottom Line on WM Stock
WM stock is a high-quality stock.
But it’s not for everyone.
Looking to generate alpha and score huge returns? Skip WM stock.
Looking for stability and steady income generation? Buy WM stock.
It’s really that simple.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not own a position in any of the aforementioned securities.