One industry that everybody needs, uses and, most importantly, must have is solid waste removal. Every week, hundreds of millions of Americans put their trash and recycling cans out on the street, and they are magically emptied by hard-working crews, many of whom get up early in the morning.
Many investors recoil at the solid waste industry with the “Own a garbage stock?” worry. The reality is the stock market is expensive, and this industry is similar to the utility stocks in the demand and safety arena. Tariffs and trade wars, geopolitical worries, and all the other noise are irrelevant.
Stifel is bullish on the segment, noting this in a recent comprehensive report:
Occasionally it becomes necessary to remind the market of the high quality characteristics of solid waste. Solid waste is a capital intensive, high regulated, necessary service and produces a prodigious amount of free cash flow. It is recession resilient, 80% of sales are service based. It has price leverage and volumes track population growth and GDP with Solid waste continually driving route density but not chasing volume. Where can the market go to own cash conversion of this quality at the current valuation range with underlying price leverage that is a domestic business with limited to no direct trade/tariff impact?
These four top stocks are rated Buy and are suitable for growth accounts with a longer time horizon.
Casella Waste Systems
Shares of this smaller cap company have performed well this year. Casella Waste Systems Inc. (NASDAQ: CWST) is a solid waste services company that engages in the provision of resource management and services to residential, commercial, municipal and industrial customers, primarily in the areas of solid waste collection, transfer, disposal, recycling and organics services.
Its Recycling segment provides a full range of solid waste services and larger-scale recycling and commodity brokerage operations. Its Other segment offers organic services, ancillary operations, major accounts and industrial services, discontinued operations and earnings from equity method investees.
Stifel has a $50 price target on the shares, while the Wall Street consensus target is $46.50. The stock closed Tuesday at $45.10 a share.
The family trust of Microsoft founder Bill Gates owns almost 4% of this industry giant, and his investment company Cascade owns almost 25%. Republic Services Inc. (NYSE: RSG) is the second-largest non-hazardous waste operator, servicing commercial, industrial, municipal and residential customers across 41 states and Puerto Rico.
Vertically integrated, it owns 340 collection operations, 198 transfer stations, 189 active solid waste landfills and 60 recycling centers. Republic has significant economies of scale, with 68% of the waste it collects disposed of at its own landfill.
The company reaffirmed its fiscal year guidance in July in part due to a lower tax rate. That said, cost control (maintenance and repair) deserves credit. The big takeaway from waste results so far are the two biggest players driving pricing at landfills for first time in years.
Shareholders receive a 1.83% dividend. The Stifel price target is $95, and the consensus target is $92.38. The shares ended Tuesday’s trading at $88.60.
This Canada-based company is another top solid waste play. Waste Connections Inc. (NYSE: WCN) provides waste collection, transfer, disposal and recycling services in the United States and Canada. It offers collection services to residential, commercial, municipal and industrial customers, as well as landfill disposal services. Its recycling services included various recyclable materials, including compost, cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals.
Waste Connections also provides exploration and production waste treatment, recovery and disposal services for waste resulting from oil and natural gas exploration and production activity, such as drilling fluids, drill cuttings, completion fluids and flowback water; production wastes and produced water during a well’s operating life; contaminated soils that require treatment during site reclamation; and substances that require clean-up after a spill, reserve pit cleanup or pipeline rupture.
Shareholders receive just a 0.70% dividend. The $105 Stifel price target compares with the $101.28 consensus target. The shares closed most recently at $91.29.
This Houston-based company is the clear industry leader. Waste Management Inc. (NYSE: WM) is the largest non-hazardous waste operator, servicing 21 million residential, commercial, industrial and municipal customers across 48 states and Canada.
Waste Management is vertically integrated, owning nearly 400 collection operations, 249 active solid waste landfills, 297 transfer stations and 104 recycling centers. The company has significant economies of scale, with 66% of the waste it collects disposed of at its own landfill. It also is a leading developer, operator and owner of landfill gas-to-energy facilities in the United States.
Shareholders receive a 1.74% dividend. The Stifel price objective is $125. The consensus target is $126.10, and shares closed at $117.75.
Stifel is quick to point out that none of these stocks are cheap, value-type plays. However, they have tended to work when markets are volatile, and the solid performance and defensive characteristics make sense now.