At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And
speaking of the best ...
Shakespeare tells us that a rose by any other name would smell as sweet, but sweeter than any rose, it seems, is the U.S. waste-disposal industry. On Wednesday, Zurich-based banking behemoth Credit Suisse initiated olfactory-assaulting coverage on Waste Management
At first glance (and perhaps second and third as well, considering the industry we're talking about), this seems a strange decision on CS's part. With the S&P 500 trading for about 18.5 times trailing earnings, only one of those three companies offers a discount to the market's overall valuation -- that would be Waste Management, at a trailing P/E of 17.9. In fact, Republic shares command nearly a 25% premium to the market, and Allied Waste sells for more than twice the valuation that your run-of-the-mill S&P stock fetches.
But generally speaking, CS believes that these companies' Sopranos-like lock on the waste-disposal industry justifies their premiums. Controlling 60% of municipal solid-waste landfills nationwide gives these firms scale that should permit "leveraging pricing gains to enhance profitability," says the analyst.
Still, the question remains: Should investors heed CS's advice to pay a premium for the right to own a share of other people's garbage? For clues to CS's skills at finding treasure in the trash bin, we turn once again to CAPS, where we track CS's calls. And we can see that CS's reputation for quality hasn't lost much of its shine since we last checked in on it in April. The bankers still boast a CAPS rating bordering on the top 5% of CAPS investors, and they still make right guesses more often -- about 55% of the time, to be precise -- than not. A few of CS's more recent correct calls include:
|
Company |
CS Says: |
CAPS Says (out of 5): |
CS's Pick Beating S&P By: |
|---|---|---|---|
|
Rock-Tenn |
Underperform |
** |
16 points |
|
EDO |
Outperform |
**** |
8 points |
|
Georgia
Gulf |
Underperform |
*** |
7 points |
|
AU Optronics |
Outperform |
*** |
4 points |
I'm not enamored with any of CS's three garbage picks, but if forced to make a choice, I think Waste Management stinks least. You see, each of the three firms carries similar analyst expectations for profit growth -- 11% per year for Waste Management and Republic; 12% for Allied Waste. But of the three, Waste Management carries the least repugnant price-to-earnings-to-growth ratio. A 1.6 PEG still doesn't look like much of a bargain to me, but if you're inclined to follow CS's advice, have only limited funds to invest (don't we all?), and want to put it in the stock with the best chance of performing, I suspect that Waste Management is that stock.
That said, I understand that my own endorsement falls a bit shy of "ringing." If you're looking for a third opinion on these companies, feel free to drop by the CAPS boards and see what the very best investors in each stock have to say about it. You can learn the identities of these superstars on the stocks' respective CAPS boards:
You may be surprised to learn that the score leader on each is no professional analyst -- but a lay investor, just like you and me.
One of these stocks was recommended by Philip Durell and the gang at Motley Fool Inside Value. Find out which garbage truck got tipped when you claim your free 30-day trial of the service.
Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 470 out of nearly 30,000 rated players. The Fool has a disclosure policy.
