Friday October 05, 2012
by John Persinos, contributing editor Personal Finance
The world’s garbage glut is a worsening headache for government officials, but it’s a big opportunity for investors to achieve healthy capital growth.
Waste Management (WM) remains the leader of the pack. This giant is the world’s largest solid waste collection and disposal company. It enjoys strong fundamentals and excellent prospects for outsized price appreciation.
Every year since 1960, Americans have generated more solid waste than the year before. The amount of trash the country produces has tripled since 1960, while the US population has increased only about 90 percent.
The search for new methods of disposal is becoming more frantic among federal, state and municipal leaders in the US. The problem perplexes global leaders as well.
The United Nations estimates worldwide annual waste production at more than 1.3 billion tons, a figure that’s growing every year in the high double digits.
In particular, developing countries such as China and India face massive waste handling problems, as their middle classes rapidly expand.
Waste Management also treats and disposes of hazardous and medical waste, as well as operating waste-to-energy and landfill gas-to-energy facilities.
Waste Management’s services generate a robust cash flow that it largely devotes to acquisitions, dividends and share buybacks.
The company has consistently paid dividends since 1998. The dividend was raised from $0.34 per share to $0.355 per share in March. That represents a healthy 4 percent dividend.
Growing revenue from acquired entities around the world, higher capital expenditures and increasing operational efficiencies should enable the company’s earnings to more than double within the next five years.
Meanwhile, new regulations from global organizations designed to boost environmentally friendly technologies are a boon for transnational players such as Waste Management.
Notably, the World Trade Organization this month significantly reduced tariffs on activities and products related to recycling, waste management and wastewater treatment.
The stock recently lagged the market because of municipal budgetary crises and cutbacks, but the bargain price won’t last long.
The stock’s price-to-earnings (P/E) ratio is 14.4, roughly in line with its sector. Waste Management is a buy up to 41.
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