3 Reasons To Buy Waste Management – When This Happens…
With new cases of the coronavirus spiking in the US and worldwide.
With the already historic unemployment levels and job losses in recent months.
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your today. And this number grows smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital.
And this is a huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
In recent articles I’ve shown you several stocks to avoid investing in…
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Today, I want to show you 3 Reasons To Buy Waste Management – When This Happens…
Waste Management (WM) is the United States largest solid waste operator.
It operates more than 250 landfills, 300 transfer stations, and picks up and transports garbage and recycling materials after use from both residences and businesses.
It’s based in Houston Texas. It has a $51.2 billion market cap. And it pays a 1.8% dividend… Which is reason #1 to consider buying its stock.
Waste Management’s 1.8% Dividend
Over the last decade Waste Management paid out a total of $15.79 per share in dividends.
At today’s share count of 425 million shares that’s equal to $6.7 billion paid out to shareholders in that time.
It also grew its dividend 70.6% from $1.26 per share in 2010 to $2.15 per share now. This is an annual dividend growth rate on average of 7.1% per year.
These dividend payments will help you in normal times earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
These regular payments will help you earn more money for your retirement. And the solid, stable, and growing dividends will help in any kind of prolonged economic issues like we’re dealing with today.
It can do this because it earns solid profits. Which is reason #2 to buy Waste Management to Depression Proof Your Portfolio.
Waste Management Earns Huge Profits
Over the last decade it earned an average operating income margin of 16.6% per year.
I look for anything above 10%.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 10% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above. If a company surpasses both thresholds it makes it a great operating business that is safe and potentially valuable.
And Waste Management falls into this category.
These profits also allow it to continually reinvest in operations to keep competitors away.
These huge profits also allow Waste Management to have reasonable debt which is reason #3 to buy its stock.
Waste Management Has Reasonable Debt
As of this writing Waste Management has $700 million in cash compared to $10.4 billion in debt.
As a percentage of its balance sheet total liabilities make up 71.1%.
And its debt to equity ratio is 1.43.
These are all above my normal thresholds for what I look for in an investment, but they aren’t horrible like I’ve shown you in many other articles.
Plus, because of Waste Management’s large profits and cash flows it can sustain more debt without it becoming an issue.
Does it give me some pause? Yes. But its not a deal breaker like some other stocks I’ve shown you.
But what about its valuation? Is it cheap?
This is the only reason to wait to buy its stock…
Waste Management IS NOT Cheap
With the markets at or near all-time highs you’d expect a fantastic stock like Waste Management to be selling at an enormous valuation.
And it is.
As of this writing its P/E is 35.6.
Its P/CF is 14.1.
Its forward P/E is 24.5.
And its enterprise value to operating income – EV/EBIT is 26.5.
On all three metrics at the top I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
This means, Waste Management is overvalued by a decent amount now.
And this means owning its stock gives you no margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Waste Management being overvalued it makes the investment riskier. Even with the other wonderful things above.
If you’re looking for a solid, safe, stable, and enormously profitable investment to buy to Depression Proof Your Portfolio – consider investing in Waste Management. But only when it’s cheaper.
Click here to see some of the stocks we recommend to Depression Proof Your Portfolio.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.