Unless you are of the Baby Boom generation, you are looking to gain momentum in your career and investment future. One of those investment targets is what stocks to pick that will give you a long term, reliable rate of return year after year. More than a few analysts are recommending Waste Management (WM) as part of that portfolio.
The environment has been a priority for Americans for the last 50 years, and whether it is clean water or clean streets, we want our living environment to be safe and healthy. Waste Management has been in business for more than two decades, and is the country’s largest environmental service that also has the largest fleet of trucks. With this brief background, let’s move on to why it is a top choice as a long term stock investment.
First, the projected earnings per share growth of the stock is 11.9%, currently almost triple the rate of inflation. This means that even with inflation figured into the equation you will have a significant profit in real dollars over the next decade. When you consider that environmental services such as recycling and trash collection are not going to fade away, this rate of return is certain to become a cash cow for your investment portfolio.
While this is a key factor in the analysis, what is even more important is the company’s management. Management has not lost focus of its core principles despite its stellar growth and profit, so as long as this continues there will be no surprises down the road. Trash pickup is not the highest tech service in the world, but this aspect of the company’s service has grown at a rate of 2 percent over the last year, meaning more trash is more cash for the company.
As an investor, keeping an eye on the obvious is essential. A growing economy means several things, among them more consumer purchases and more industrial production. These two factors alone mean there will be more waste to be handled by production and disposal of consumer packaging. Even if the economy is truly cyclical, there will be opportunities to both buy and sell the stock over the next two decades.
Another easily overlooked factor is environmental regulation. From a political perspective, the party of the elected presidents over the last two decades has been: Democrat (8 years), Republican (8 years), Democrat (8 years), Republican (2 years and counting). Though the part of the next president remains to be determined, the political priorities of each party are very different. More government regulation or less government regulation will benefit Waste Management, but it is still important to keep an eye on how the political makeup of the federal government will impact the stock.
Then there is the individual consumer’s personal habits. As we all know, habits are hard to break, especially when they are not perceived as a “big deal.” Ask yourself when was the last time you gave a second thought as to where the packaging from your last Amazon order will end up. It’s not as if you don’t care, but it is fair to say you have other priorities. Multiply this by 300 million and you can see how the future of Waste Management for investors is a bright one.
Not everything is popping up roses for the company. One of the biggest red flags noted by critics of the stock pick is its debt heavy balance sheet. Debt is always a problem for companies, particularly the long term type. What offsets this over the long term is the underlying point that is consistent throughout this recommendation – people’s habits are hard to change. Some believe the answer to many of our problems is new technology. This is largely true, but Waste Management has been and is likely to continue to be the leader in making changes to its processes that keeps it at the head of its industry.
Its recent stock price of $94.90 a share makes it pricey for many investors, but the good news is that young investors don’t have to plunk down $10,000 for a 100 share block. Buy 5 shares or even 1 share and start your investment now. The 5 year trend of the stock has been nothing but upward, so by applying the number one rule of stock market investment – patience – you will be able to benefit from Waste Management’s long term potential.
Written by Garrett Parker
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