Waste Management (WM): Stock Evaluation Contest Winner

Cabot Professional Stock Evaluation Contest Winner! Thanks to Enrique B. for submitting this week’s pick, Waste Management (WM).

If you would like a complete evaluation of your stock pick, please visit our Contest Page.

October 27, 2017

Waste Management (WM)

Waste Management is a giant (market cap is around $36 billion) in the disposal and recycling of trash in the U.S. and Canada, an industry leader that has 21 million customers, over 40,000 employees and operates 104 recycling facilities and 244 landfills.

When you asked for an evaluation of the stock, WM was very much a steady performer, not what I would call a real growth stock. (Waste Management hasn’t ever been featured in Cabot Top Ten Trader, which is the seal of approval for growth stocks.) Rather, it’s been a reliable long-term investment whose dividend—the annual yield is about 2.2%—makes up for the occasional sharp pullbacks and flat patches you see in the chart below.

While WM has been a tractor, grinding its way higher, there was little evidence that the stock had the potential for an energetic break higher. That turned out not to be true, but I’ll hold off on that story for a while.

Here’s a weekly chart for WM, showing the stock’s price since late 2014.

One reason for WM’s steady-but-not-fast price advance is that Waste Management has the reputation of being a great hedge against downturns in the economic cycle. Even when the economy turns sour, people still need to have their garbage picked up. So, even if annual revenue growth is pretty anemic (2% in 2012 and 2013, 0% in 2014 and down 7% in 2015, then up 5% in 2016), there’s a place in a diversified portfolio for stocks like WM, which play defense pretty well. So while WM seldom outgains the S&P 500, it seldom loses much ground to it either.

The big surprise in WM came along the day after you submitted your entry in the Cabot Professional Evaluation Contest. That’s when Waste Management released Q3 results that surprised on the upside. Revenue was up 5% in the quarter and earnings were up 7%, and the company’s after-tax profit margin came in at 10.7%, the highest in years.

Here’s what the daily chart looks like with that juicy jump from 78 to 81 on Thursday and the follow-through advance above 82 on Friday.

In your statement of “Why is this stock on your mind,” you said that “With all the crazy weather patterns & disasters this service is needed more now.” But it may be more accurate to say that despite changes in weather and disasters, the need to get rid of trash is a constant.

WM looks like a good choice for a long-term core holding that keeps its value and pays a reasonable dividend. And even after its big rally, the stock’s P/E is a reasonable 26.

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Biogen (BIIB): A great alternative to Mylan

As much as I am pessimistic about the future of Mylan (MYL) (the stock), I remain bullish on the medical sector as a whole. People are going to keep paying for improved health, and the companies who can deliver it while keeping both their shareholders and the public happy will succeed.

In fact, of the 16 stocks currently held in my Cabot Stock of the Week portfolio, four are in the medical sector. And the one I want to talk today is Biogen (BIIB).

Biogen makes therapies for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. Its big moneymakers target multiple sclerosis (MS), hemophilia and severe plaque psoriasis. While Mylan has annual revenues of $10 billion, Biogen’s revenues are $11 billion, so they’re in the same league. But Biogen isn’t irritating its customers!

Biogen’s stock hit a record high of 480 back in March of 2015, but the stock, like many biotechs, came under selling pressure, eventually shedding more than 52% of its value. At that point, it was definitely unvalued.

But what was needed to truly set the bottom was a big visible piece of bad news (though not too big), and that was provided in early June, when the company’s trials of an improved treatment for MS did not meet expectations. The stock plunged 12% on the news, eventually bottoming two weeks later at 226.

Despite the setback, Biogen remains the market-share leader in treating multiple sclerosis!

Furthermore, the company is involved in mid- and late-stage trials for Alzheimer’s disease. An effective Alzheimer’s treatment could be worth tens of billions in annual sales for Biogen within two to three years!

So, Roy Ward, Cabot’s senior value analyst, featured the stock in Cabot Benjamin Graham Value Investor on June 9, and today, his followers have a gain of 23%!

Following in Roy’s footsteps, I recommended BIIB to the readers of my own Cabot Stock of the Week on June 21.

Here’s the chart of BIIB when I first recommended it.

And here’s the chart today.

My readers now have a gain of 30%!

If this kind of stock interests you, you have two choices.

1. You can become a regular reader of Roy Ward’s Cabot Benjamin Graham Value Investor, and concentrate on the value stock universe. Roy’s approach, which he has refined over many decades, is entirely by the numbers. He follows all the quality value stocks in the market (275 of them, to be exact), and he calculates a Maximum Buy Price and Minimum Sell Price for each one of them. As to his record, it’s excellent.

Since inception in 1995, the Cabot Value Model has provided an impressive return of 1,183.1% compared to a return of 603.3% for Warren Buffett’s Berkshire Hathaway. During the same 20-year period, the Dow has gained just 259.6%.

For details click here.

2. Or you can become a regular reader of my own advisory, Cabot Stock of the Week, which every week recommends one cherry-picked stock that’s previously been recommended by another Cabot analyst. In this way, you can build a diversified portfolio of stocks selected by a variety of successful investing systems (growth, momentum, small-cap, emerging markets, dividends) and gain safety through both diversification and market timing. For more info, click here.

The choice is yours. The sooner you join us, the sooner you can get on board the great bull market of 2016!

Company Details

Biogen (BIIB)
225 Binney Street
Cambridge, MA 02142
United States
Sector: Healthcare
Industry: Biotechnology
Full Time Employees: 7,350
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