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.