One of the best investors of our time, Peter Lynch, has said that "a company that does boring things is almost as good as a company that has a boring name, and both together is terrific."
Case in point: Waste Management (WM 1.91%), a company that does just what its name says -- manages our waste. According to what Peter Lynch said, this company is off to great start, in that it both has a boring name and is boring.
What's more, it carries the majority market share, has the largest network of landfills in the U.S., is leading the market in its growth sentiment toward "going green" and, whether you knew it or not, is actually a holding company that consists of hundreds of subsidiary waste management services.
Here's more on why it's a great pick for both conservative and long-term investors.
1. 38% market share, plus industry diversification
Some may wonder if having such a large share of the market carries the risk of being labeled a monopoly, but don't forget that WM is actually a holding company of 437 subsidiaries, to be exact.
In other words, when investing in WM, you're putting your money to bat for over 400 companies and in 38% of the waste management industry. Furthermore, through its subsidiaries WM has ownership in 247 solid waste landfills, 5 secure hazardous waste landfills, 102 material recovery facilities, and 314 transfer stations.
The subsidiary businesses include a diverse range of niche companies that provide the following services within the waste management industry:
- Waste management services for residential, commercial, industrial, and municipal customers
- Waste collection services
- Ownership, development, and operation of multiple landfills, including ownership in the real estate, as well as the revenue from operations
- Materials processing services
- Commodities recycling services
- Recycling brokerage services for third-party companies (this means that, even for the companies within the industry that it doesn't own, WM is providing services for and taking a small share of revenues)
- Construction and remediation services
As you can see, it's almost an understatement to say that WM has its hand in nearly every area of the waste management industry, a positive indicator of a potentially great investment.
2. WM is leading the way for the future of waste management services
A common question many might have is, "What is the outlook of the industry?" Some may even take it one further to say, "What happens as the waste management industry moves toward a 'greener' economy?"
Both are great questions, and the answers further support my belief in WM as an investment. Remember those 437 subsidiary companies owned by WM? Among them are some of the leading companies that are paving the way for a greener economy. If there are companies promoting the habit of recycling, reducing the pollution of carbon monoxide in our air, and saving and protecting the trees, there is a high chance that the campaign is being led by WM or a subsidiary.
In fact, to give you an idea of some of the impact it has had in this space, consider the following:
- It managed 15.3 million tons of recyclable waste in 2017 alone.
- It produced 2.4 million metric tons of carbon dioxide equivalent in 2017. In other words, rather than using 2.4 million metric tons of carbon dioxide for energy, it used proper waste disposal and converted it to energy production that is the equivalent of 2.4 million metric tons of carbon dioxide.
- It managed to protect 25,568 acres of land in 2016, and 20,000 acres in 2017 -- the dip in the number of acres protected is based on a new focus on quality over quantity.
Long story short, WM has put the green economy movement at the top of its priority list. This reduces the risk of a potential "dying industry" and further supports the belief that it is the market maker for the future of the waste management industry, both of which are positive indicators of a bright future for the company.
3. Above-average fundamentals
A quality investment without a proper analysis of the fundamentals of the company is essentially a blind investment decision. Aside from the stark facts discussed above, there are three strong indicators that make WM a great long-term investment.
Return on equity: The return on equity (ROE) measures the ability of a company to generate profits with investors' money. WM's trailing-12-month ROE is 27.7%, in comparison to the industry average of 20.9%. This indicates that WM is very strategic about how it uses your money to grow the company and ultimately your wealth.
Gross profit margin: This is the amount of money left over after subtracting costs from revenue. WM has a gross profit margin of 38.7%. This means that, for every $1 in sales made, it keeps roughly $0.39 after subtracting the costs of doing business. Whatever it's doing, and whenever it does it, WM is making money on it. Some companies and industries don't even break the double digits in percentage of gross profit margin. With these kinds of margins, one thing is for sure: It would be difficult for WM to lose money on sales made. This to me indicates a very strong business model that merits a check mark of approval.
Beta: The beta indicates how volatile a stock is in comparison to the market as a whole. WM currently has a three-year average beta of 0.6. This indicates that WM will likely have less of a negative impact in a bear market and will likely have a lower positive impact during a bull market, and less volatility overall. What does this mean? In short, it indicates lower risk, slightly lower return, and steady long-term growth. A solid investment portfolio has an array of different risks, and those looking for a solid company with less volatility to add to their portfolio would be wise to look at WM.
Here's to investing in garbage!
The waste management industry isn't going anywhere soon, and the leading company of that industry has even trademarked the industry title and branded it as its own. WM has strategically nudged its way into nearly every corner of the industry and created a goliath of a company that will be hard for any competitor to take down.
With a strong diversification of hundreds of subsidiary companies in all sectors of the industry, while paving the way to a greener economy, and a solid history of growth and company fundamentals, I'd say WM is a prime candidate to buy and hold for a long time.
This article was written by MyWallSt contributor Cameron Williams.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold no positions in the companies listed above. Read our full disclosure policy here.