My Waste Management Investment StrategyAfter the last earnings report causing one of my favorite stocks to fall, it presents a valuable opportunity in my opinion. I am going to write what I like about the company and why I feel like it is a good idea to have Waste Management in your portfolio. I will write about all the reasons I think this is a good investment. Enjoy!
The very first thing I do when I am looking at a company for the first time, is calculate the intrinsic value of the stock to determine if it is undervalued or not. According to the numbers I ran through the equation Waste Management is undervalued by approximately 40% at this time of writing. I reasonably believe the stock could be worth as much as $280 in the next couple years.
Waste collection and disposal are critical for public health and safety, making them essential services that society cannot function without. Demand for these services is stable and generally not affected by economic downturns or price increases because customers, whether residential or commercial, will continue to generate waste that needs managing.
Establishing waste management infrastructure, such as landfills and processing facilities, requires significant capital investment, technical expertise, and complex permitting processes, making it difficult for new competitors to enter the market. The industry is often fragmented, allowing large publicly traded companies to acquire smaller, regional firms, leading to economies of scale and increased market share.
Companies are increasingly investing in recycling facilities, converting landfill gas into renewable natural gas (RNG), and offering other environmental services. These initiatives align with global sustainability goals and create new revenue streams and growth opportunities, attracting ESG-focused investors.
Many established companies in this sector have a history of consistent dividend payments and share repurchase programs, appealing to investors seeking reliable income and long-term value. The low volatility of the waste sector can help diversify an investor's portfolio and provide some protection during volatile market cycles.
The cost of waste removal is typically a very small fraction of a customer's total expenses (e.g., well below 1% for commercial customers). This low relative cost makes customers less likely to scrutinize price increases or switch providers over small differences, making it easier for companies to raise prices.
In summary, garbage companies have significant pricing power primarily due to high barriers to entry, the essential nature of their services, and the localized, regional-monopoly characteristics of the industry.
