1 Stock Making Money the Right Way

Consumers are becoming more and more socially conscious, and want the goods and services they use to measure up. In truth, it doesn't take much. A simple action that costs a company very little or nothing at all can make a real difference in the mind of the consumer.

Often, the added expenses a company incurs from paying workers a little more, monitoring resource sourcing, or going the extra ethical mile are small downsides when compared to the huge potential upside. And where there's company upside, there's investor upside.

Waste Management (NYSE: WM  ) is just such a company. Let's dive deep into the rubbish specialist, evaluate its socially conscious policies and practices, and take a hard look at the numbers. We'll evaluate how it's performing as a business, an investment, and as a socially conscious enterprise.

Thinking outside the landfill
Waste Management probably isn't the first company that pops to mind when you think of a socially responsible enterprise. But the fact is, we humans need to throw things away, and Waste Management is undertaking a series of initiatives and campaigns that think outside the box, and the landfill, regarding exactly what "away" can mean. In addition to traditional recycling of bottles, cans, plastics, etc., the company also offers such innovations as:

  • Electronics recycling, so those old televisions and computers end up being reused rather than becoming a seagull perch in a landfill.
  • Fluorescent bulb and battery recycling, so the dangerous chemicals and components rife in both are safely disposed of.
  • Household hazardous waste disposal, so the paint from that old can of '70s-era burnt orange won't leak into our water supply.
  • Food waste pickup, so if you don't have the room or the inclination to compost, Waste Management will do it for you.

The company also offers specialized disposal and recycling for the manufacturing, health-care, food, and retail sectors. In the construction sector, Waste Management can even help companies meet their LEED certifications.

In the "sustainability" section of the company's website, there's a video with the line: "Instead of thinking about where waste can go, we think about what it can do." That's marketing, of course, but the company backs up its words with actions -- actions that help it turn a nice, tidy profit while doing some good. Now let's take a look at the numbers and see how the business and the stock are performing.

Turning trash into cash
Rubbish collection is as much of a necessity for human civilization as water, sewage, and electricity. Just conjure up images of any of the big-city garbage strikes that have made the news in past years and it will be clear why companies like Waste Management aren't going anywhere, anytime soon. By the numbers for the company:

  • Quarterly revenue grew a healthy 8.9% year over year.
  • Quarterly earnings grew a more-than-healthy 11.5% YOY.
  • The balance sheet holds $282 million in cash, along with $9.68 billion in long-term debt. That's a whole lot of debt versus not very much cash, but at least money is cheap right now, and a company like Waste Management is a cash-generating machine, so it should be able to keep up with debt payments.

Gross margin, a measure of brand strength and pricing power, is a solid 36.6% TTM for Waste Management, but peer Republic Services (NYSE: RSG  ) comes in at a significantly better 40.9% TTM. Somewhere in the very top lines, Republic Services is doing a better job of controlling costs. Waste Management, with a gross revenue of $13.16 billion TTM, verses Republic Services' revenue of $8.19 billion TTM, ought to be able to find greater efficiencies and economies of scale and therefore do better here.

Since 1987, still making money and a difference
Waste Management's share price did take a dive right around the end of July, from about $36 to $28, likely on lowered guidance on waste volume (it didn't help that the whole market tanked then), but has recovered nicely to today's price of $33. The P/E of 16 is very reasonable, better than Republic Services' 19. Casella Waste Systems (Nasdaq: CWST  ) beats both of these companies with a share price of $6.84 and a P/E of 4.66, but there's a good reason those numbers are so low: The company is currently operating in the red.

Waste Management provides a service we can't live without, has strong top and bottom lines, and even pays a dividend of 4.1%. And it's a company that's trying to do the right thing. Are any companies perfect in this regard? No, but to paraphrase Voltaire, it's important to never let the quest for the perfect drive out the good.



Waste Management's success makes a strong case that there's no inherent contradiction between making money and making a difference. Read about two more Motley Fool favorites that are healthy, wealthy, and making a difference in their own ways in this special free report: The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail. Get your copy while it's still available by clicking here.

Fool contributor John Grgurich quotes Voltaire whenever he gets the chance, though his German shepherd prefers Nietzsche. Neither owns shares of any of the companies mentioned in this column. The Motley Fool owns shares of Waste Management. 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 positively scintillating disclosure policy.


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  • Report this Comment On January 13, 2012, at 9:03 PM, 1caflash wrote:

    John, there is potentially more good news when WM keeps its shareholders' promise and Raises the Dividend to 35.5 cents-per-quarter by March 31, 2012. This annualized rate will be 4.1% at an approximate $34.63 share price. Thank You for the article.

  • Report this Comment On January 17, 2012, at 10:09 AM, XMFGrgurich wrote:

    Thank you for the additional info. I hope the dividend raise comes through. Cheers.

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