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  • Turning Piles of Trash Into Piles of Cash

    Garbage is a quasi-commodity, made of bits and pieces of many commodities. Before record oil prices made it profitable to wring oil out of the Canadian sands, that land was almost looked at as garbage. Now, in many places, it is profitable to scavenge landfills for pieces of metal and plastic. In some poorer countries, people burn and melt down old computer components for until there is nothing left but the minimal amount of metal that survives. Indeed, one person’s trash is another person’s treasure.

    It is believed that between 5% and 10% of global oil production is distilled and made into plastics. Due to the high (and growing) plastic content of garbage and the general ease in recycling plastics, trash is an ideal source for the raw materials needed for the making of plastics.

    Of course, plastics are not the only recyclable garbage. Aluminum, for example, is also abundant in garbage and a commonly recycled resource. As the value of oil and aluminum increases, among other commodities, the depths to which trash shall be filtered will only increase. Beyond the high global demand for commodities and their increasing prices, newer green initiatives also appear likely to support the recycling industry.

    All of this appears likely to benefit those companies that collect, sort and maintain trash, especially here in the United States where our trash is especially full of more valuable recyclables. Many of the publicly traded companies in this business are of significant size, and tend to acquire smaller businesses that identify new trash opportunities. The industry is also beloved for generally having strong cash-flows and dividends.

    Below, in alphabetical order, are five publicly traded trash companies that appear to have strong prospects for future growth.

    Casella Waste Systems Inc. (CWST)

    • Market Cap: $ 159 million
    • Yield: N/A
    • P/E: N/A
    • Cash Flow: $ 71.72 million
    • Leveraged Free Cash Flow: $ 19.95 million

    Progressive Waste Solutions Ltd. (BIN)

    • Market Cap: $ 3.02 billion
    • Yield: 2.0%
    • P/E: 31.68
    • Cash Flow: $ 304.48 million
    • Leveraged Free Cash Flow: $ 187.75 million
    • Note: a Canadian company, while the other 4 are based in the U.S.

    Republic Services, Inc. (RSG)

    • Market Cap: 11.8 billion
    • Yield: 2.5%
    • P/E: 19.97
    • Cash Flow: $ 1.57 billion
    • Leveraged Free Cash Flow: $ 750 million

    Waste Connections Inc. (WCN)

    • Market Cap: $ 3.52 billion
    • Yield: 1.0%
    • P/E: 24.78
    • Cash Flow: $ 333.09 million
    • Leveraged Free Cash Flow: $ 152.56 million

    Waste Management, Inc. (WM)

    • Market Cap: $ 18.1 billion
    • Yield: 3.5%
    • P/E: 19
    • Cash Flow: $ 2.38 billion
    • Leveraged Free Cash Flow: $ 1.03 billion

    While all companies in this industry should benefit from the continued growth, technological advancement and greater need for recyclable materials that will undoubtedly come over the next several years, on a free cash flow basis RSG appears to be relatively undervalued. CWST is by far the smallest and most volatile name on the list, and also the only name that is not presently profitable. Nonetheless, the larger companies in this industry appear to grow at relatively similar rates, though WCN has appreciated at the most consistent rate over the last 10 years. Additionally, BIN has appreciated approximately 100% over the last 2 years, since its IPO, though it has been range bound since about September of 2010.

    This industry is all too often overlooked, like so much trash that you may pass by on a daily basis. Take a look where you work and on your way home, and you will likely see at least one of these companies handling former trash and future treasures.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Each investment should be considered on its own merit and relative to the entire portfolio to which it shall be added.

    Yahoo! Finance: Waste Management Industry News

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