Why Waste Management Is A Core Portfolio Holding

Waste  Management (WM) - 12/29/2019
Stock Price: $113.89
Market Cap: $48.35B
Forward P/E: 24.58
Dividend Yield: 1.80%
TSC Core Equity Portfolio Weight: 3%
Price Target(s): $126, $195(+10.5% and 71% upside potential)

Fundamentals
  • Keep it simple: It's trash. Trash is just something that will not magically disappear and be zapped into space...and if it eventually is, Waste Management will probably be the ones who do the zapping. This is an incredible management team that has consistently executed and is firing on all cylinders. 
  • Growth in North America remains strong, and should continue as long as housing starts and construction continues to trend higher. 
  • Thanks to landfill permits and route density/optimization, the garbage business is essentially an unregulated regional monopoly. There is minimal competition beyond local municipality trash services. This is a wide moat business you want to own.
Technicals
  • Shares of Waste Management have been in a well defined 30+ year rising channel. The stock has two well defined price targets: $126 and $195, representing 10.5% and 71% potential upside from current prices. These price targets are derived from the 261.8% and the 423.6% fibonacci extension levels of the stock's 1999 high and 2000 low.

Risks
  • Waste Management's recycling division has served as the biggest headwind for the stock. Recycling has been tough for a number of reasons, including america's inability to properly clean their recycables before throwing them in the bin. China won't take our sh*t anymore. Meeting these increasingly stringent contamination standards will drive down margins in this segment.
  • A drop in consumption means a drop in garbage waste, so while this stock is a defensive name, expect it to be hit in any economic slowdown. 

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