According to the latest data from gurufocus.com, Waste Management (NYSE: WM) makes up the second-largest holding in Bill Gates’ portfolio (with the largest still being Berkshire Hathaway) coming in at 9.94% of his entire portfolio.
This has many investors wondering, why does Gates love this stock so much?
And with the recent economic crisis, the stock has crashed by more than 20% since just a month or so ago and is still slightly underperforming the S&P500 and all of its peers.
Waste Management Stock Price VS. Peers
If Bill Gates loves it, is now the time to buy Waste Management stock?
What Does Waste Management Do?
As the name suggests, Waste Management is an American waste collection and processing company based in Houston, Texas, and as of April 2020 owns or operates 346 transfer stations, 293 active landfill disposal sites, 146 recycling plants, 111 beneficial-use landfill gas projects and six independent power production plants.
They also serve customers in Canada, boasting a customer base of nearly 21 million that consists of both commercial, industrial, and residential customers.
Together with its competitor Republic Services, Inc, the two handle more than half of all garbage collection in the United States.
The Ultimate Recession-Proof Stock?
An argument could be made here that Waste Management is a safe investment no matter what the prevailing market conditions are.
People will always need garbage collection, so unlike industries that are being hit hard right now like airlines and cruiselines, Waste Management’s business is extremely unlikely to massively decline even if we sink into a deep recession.
Also, Waste Management has not only managed to keep their dividend but also grown it every year for the past 17 years despite other financial turmoils such as the 2008-9 Great Recession.
Dividend Summary Of Waste Management (WM)
All this while maintaining a respectable payout ratio of under 60%.
Comparison Against Peers
Looking at the forward P/E ratio, it seems like WM is rather cheap compared to some of the other waste processing companies.
Forward Price/Earnings Ratio
Although its EBITDA Margin is not the highest in the industry, it is not far off from the leaders. And like it is often the case in the waste processing industry, it has remained very consistent for the past year.
Looking at the balance sheet, Waste Management has a decent amount of cash, coming in at over $3.5B with its current ratio coming in at almost 2. This is good sign that in the short term they will be able to withstand any potential financial difficulties.
There could be value in investing in “boring” stocks like Waste Management.
The trailing P/E ratio of Waste Management has fallen the most out of all its major profitable peers.
It currently trades at a trailing P/E of around 23 versus a trailing P/E of over 28 just over a month ago.
% Change in Price/Earnings Ratio
Although the company was forced to take some precautionary measures such as reducing staff levels and scaling back or suspending non-essential areas of the business like electronics recycling and yard waste collection, Waste Management’s core operations still provide a service that is essential to society and remains operational despite the ongoing COVID-19 pandemic and the subsequent shutdown of businesses.
Waste Management CEO Jim Fish recently said in an interview on Yahoo! Finance that the company is not laying off any workers and has guaranteed a 40-hour workweek’s pay to nearly 45,000 employees amid the crisis.
Management is building goodwill with employees which should lower operating costs in the future through lower employee turnover and hiring costs, not to mention more motivated employees.
Waste Management offers a very attractive dividend yield and with the recent selloff you can buy in at a discount and maximize your annual returns in this slow but steady stock market gem.
Waste Management Dividend Yield Best in the Group
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.