1 Stock Tony Soprano Would Love

TV mob boss and loving husband Tony Soprano always told people not in the know that he was in the business of "waste management." You and I both know that wasn't the case, as he amassed his small fortune and influence through other, illicit activities. However, he was able to get away with this little lie because everyone needs trash hauled away.

In real life, the waste management industry is viewed as utility-like -- people need trash and recyclables hauled away much like they need electricity and water. The industry leader is aptly named Waste Management (NYSE: WM  ) .

Company strengths
Waste Management owns the largest network of solid-waste landfills in the country, with 271 landfills either owned or leased. While it doesn't haul all the trash to the landfills, as the owner of the landfills, it represents a place for everyone to dump their trash. As a comparison, competitor Republic Services (NYSE: RSG  ) operates 193 solid-waste landfills.

Waste Management also has several operating subsidiaries that focus on innovative and productive uses of waste. For instance, subsidiary Wheelabrator converts trash to energy by incinerating it at high temperatures, converting it into high-pressure steam. The steam is then turned into electricity, which is sold wholesale to utility companies or directly to the end user of the electricity.

The company also operates nearly 300 transfer stations, where trash haulers can dump their trash for compaction and later transferal to disposal facilities such as landfills or the waste-to-energy sites, via truck or rail.

It's not all about trash, though. Waste Management was the first company to introduce single-stream recycling; customers simply put all their recyclables into one bin and eliminate the time spent sorting the items. Recycling is a large part of the business, bringing in almost $1.2 billion in revenue in 2010.

Can't forget the weaknesses
As a major recycler, Waste Management needs commodity prices to remain high in order to maximize profits. Paper makes up the majority of its recyclables, primarily corrugated cardboard and newsprint. As recently as 2008, the prices of these commodities dropped more than 70%, and revenue suffered by nearly $450 million in 2009. Luckily, overall commodity prices for the company are currently up 57% compared with 2009, but that could change with the overall commodity market.

Waste management is a seasonal industry, with heavier volume during the summer months due to an increase in construction and demolition waste. Furthermore, as with any company with a large fleet of gas-guzzling trucks, Waste Management feels rising fuel costs as well.

Opportunities abound
The rest of the world also produces trash, and Waste Management is in a position to capitalize on the most populous country in the world. During the first half of 2010, Waste Management purchased a 40% equity share in Shanghai Environment Group. As part of the joint venture, Waste Management will participate in the operation and management of waste-to-energy and other waste services in the Chinese market.

Subsidiary Wheelabrator is pursuing development projects to provide waste-to-energy services in the United Kingdom. France-based Veolia Environnement (NYSE: VE  ) would be a major competitor for these services, though Veolia currently earns only 2.5% of its energy service revenue from the United Kingdom.

We can compare Waste Management's dividend yield to others in its industry. With the recent drop in its stock price, its yield has risen in the past few months. Throw in that it is a big dividend booster over the past decade, and it might be the best choice in its industry.

Company

Recent Price

P/E

Dividend Yield

Waste Management

$30.45

15.29

4.5%

Clean Harbors (NYSE: CLH  )

$52.28

24.40

N/A*

Veolia Environnement

$13.23

33.58

10.5%

Covanta Holding Corp. (NYSE: CVA  )

$15.39

11.92

1.9%

Republic Services

$27.94

21.98

3.1%

Waste Connections (NYSE: WCN  )

$33.30

24.11

0.9%

Source: Yahoo! Finance. *Not applicable because the company doesn't pay a dividend.

It's a dirty job
Waste Management has to keep an eye out for threats. In an industry that handles some icky stuff, including hazardous things from time to time, the company needs to comply with strict local and federal regulations and laws. At any given time, the company may be involved in civil litigation, often regarding the placement of its landfills or transfer stations. Future interpretation of current statutes could require the company to make drastic changes to the way it conducts its primary business.

Another looming threat is budget difficulties among its municipal customers. While cities and towns will always need their trash handled and taken away, rising municipal debt is another threat to business as usual for Waste Management. Municipalities could look to cut costs by hauling their own trash. This is mitigated slightly by the fact that Waste Management would still own the landfills and transfer stations where the trash would be taken, but it is something worth keeping an eye on.

What do you think?
I am adding Waste Management to My Watchlist to keep an eye on the company over the next few months. I think the strengths and opportunities outweigh the weaknesses and threats, and others think that Waste Management is a stock to buy if you're being opportunistic. Are there other companies you think I should be keeping an eye on? Let me know in the comments section below.

Foolish contributor Robert Eberhard creates his fair share of trash but doesn't own shares in any companies mentioned here. Follow him on Twitter @GuruEbby. The Motley Fool owns shares of Waste Management, Covanta Holding, Clean Harbors, and Veolia Environnement. Motley Fool newsletter services have recommended buying shares of Republic Services and Waste Management. Motley Fool newsletter services have recommended creating a write covered strangle position in Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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