Dear Bottarelli Research Reader,
I’m sure you’ve heard the old economic adage: “There’s no such thing as a free lunch.”
Well, in the spirit of Earth Day (which was celebrated around the world on April 22), I can tell you that “there ain’t no such thing as a free tree” either.
Here’s what happened…
My wife came across a charitable foundation giving away hardwood saplings. They were probably envisioning smiling housewives in straw hats, aprons, and gardening gloves planting said trees in their suburban yards.
So of course, she “adopted” six of these trees (three red oaks and three beech trees) and sent me out back on Sunday with a shovel, rake, u-post, chicken wire, and a half a ton of mulch to do our part – all in the pouring “Earth Day” rain.
I can’t tell you if these six trees will have any measurable effect on the quality of air. But planting them sure made my wife happy. And both Bryan and I firmly believe in that other great adage — “Happy wife = Happy life.”
Now, this tale of environmentalism doesn’t come without a point…
You see, we have a recommendation for you today that goes hand in hand with this “green” theme. And unlike Earth Day, this one stays green for all 365 days of the year.
The company is Waste Management (WM – NYSE), and as you’ll see they’re probably one of the most misunderstood companies out there.
First, try to wrap your mind around a garbage company as a paragon of green virtue. Remember, they don’t make the trash – you and I do that. But, the bright guys at WM are working hard to find better ways to dispose of our junk.
Green All Year
First off, you should know that Waste Management is much more than a trash collector. Unknown to most, WM is North America’s largest recycler.
By the year 2020, they expect to manage more than 20 million tons of recyclable commodities per year.
They’ve upgraded many of their facilities to capture the methane waste generates and transform it into usable energy for households.
Waste Management is also developing and deploying technology capable of turning trash into energy capable of powering more than a million households (and they’re looking to double that output by 2020).
Meanwhile, they’re also looking to improve their truck fleets’ fuel efficiency by some 15%. And finally, they’re on track to set aside 25,000 acres dedicated solely to nature preservation by 2020.
If having a sound moral compass isn’t enough to make you own this stock, Waste Management has been recognized by the Ethisphere Institute (the leading business ethics think-tank) as one of the 2012 World’s Most Ethical Companies. This is the fifth year they’ve been honored.
That’s all fine and good, but here’s the upshot…
WM is in the most sustainable business in the world.
They hauled away $13.38 billion worth of trash over the past 12 months for a profit of $4.84 billion.
WM is scheduled to report earnings on April 26. The analysts are estimating revenue to grow 3.4% for this last quarter and 4.7% next quarter. Earnings are expected to come in at $0.39 and $0.54 respectively. Best of all, their forward dividend yield is currently penciled in at 3.90%.
We recommended WM to Bottarelli Research LEAPS subscribers back in February. It took some time (with all this doubt sitting on the markets), but we’re finally seeing the herd wake up regarding the potential in this very “untrashy” company.
Dow Still Doubts the Fed Will Help
When we look to the Dow Jones Industrials, we still sense fear. Investors are waiting with baited breath to see what the Fed says at the end of this week’s big two-day meeting.
At the moment, analysts are calling for a whole lot of nothing – no rate hikes any time soon and no new easing programs either. No new free money means no new cheap profits financing the government’s debts.
The last thing Wall Street wants to do is actually work for a living. So, that’s why I’m calling for a drop to support at the Fibonacci 38.2% Retracement at DJIA 12,187.
That doesn’t mean you should sell everything. First I want to see what the Fed (and the market) actually does. Heck, a bounce off that level would be considered an extremely bullish buying opportunity.
But, this Dow deadweight makes it pretty darn difficult to find potential breakout candidates at current prices. So, you can’t imagine how pleasing it is to see stocks like WM break away from the pack.
To that very point, WM’s technical chart shows the shares breaking up and out of their recent consolidation pennant. No shock there, as historical studies give us 75% odds of exactly this result.
Where the Dow Jones Industrials are still kicking out sell signals, WM still shows an MACD gap and rising share accumulation.
When I turn to the historical studies, I see that pennants like this one produce an average rise after breakout of 21%. If we officially declare the “breakout” as the moment WM shares broke resistance at $35.45, it’s fair to expect WM to reach $42.76 within the next eight to 12 weeks.
Of course, continuing this trend all depends on how Wall Street reacts to WM’s upcoming earnings report. But right now, the recent breakout tends to slant the sentiment to the bullish side.
How to Play It
When you find an exceptional company that breaks with the pack like this, you buy it. Add in a forward dividend yield of 3.90%, and any dips should be considered even better buying opportunities.
I advise you to latch onto WM’s dividend now because if this recent pattern continues to play out, it’ll cost you 21% above today’s price once the rest of the herd catches onto the value here.
For LEAPS investors who currently own WM, your day in sun is about to arrive. A 21% move should push your mid-dated WM calls to triple-digit gains.
Sincerely,
