"We are selectively taking advantage of deep values such as Waste Management (NTSE: WMI), which is selling at a compelling valuation," says Jim Stack, a safety-first money manager.
In his InvesTech Market Analyst he adds, "Waste Management displays the characteristics we search for in new investments including a distinct competitive advantage and solid financials.
"It is a giant in its industry; Waste Management is the largest solid waste management company in North America. Founded in 1894, it serves nearly 20 million customers.
"With the nation's largest network of landfills, Waste Management has significant pricing power and can charge fees to competitive waste haulers who don't own, or have access to, their own landfills.
"The company is vertically integrated and includes divisions for recycling and waste-to-energy, allowing customers to not only manage, but minimize, their waste. These portions of the business could show strong growth as 'green' initiatives continue to gain momentum.
"Waste Management boasts a strong balance sheet with free cash flow of $260 million. The company has exhibited good cost control, increasing operating margins from 24% in 2004 to nearly 27% currently.
"The stock currently yields 3.3%, well above the S&P average, and the dividend is sufficiently protected with less than a 50% payout ratio. In fact, the company has announced it will raise the dividend by 7.4% to $1.16 per share in 2009.
"This firm's dedication to increasing shareholder value is evidenced by their 2009 expenditure plan which allocates $1.3 billion to dividends, common stock repurchases, debt reductions and acquisitions.
"In November, WMI warned that Q4 profits would be dampened due to the falling value of recycled commodities. Also, weakness in the economy portends lower waste volumes particularly in the residential and industrial segments.
"However, the strength of this company's business model has been evident in past recessions due to the essential nature of their business. Earnings estimates for 2009 have been reduced, but are still projected above 2008 levels.
"Waste Management is currently selling at valuation levels equivalent to those at the end of the 2000-2002 bear market. Moreover, we believe this stock will remain fairly stable, even in a prolonged recession, and should definitely benefit from any economic recovery."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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