Waste Connections (WCN.TO)

Last time he looked, this was pretty expensively priced. Has met with management, and it is pretty impressive. The kind of a name he wished he had bought.

It has corrected. It is still expensive. He likes one in the US (Republic Services). The multiple is too high for him to buy it. They are doing the right things and are acquiring the right companies and turning them around quickly.

An idea based upon a pickup on global growth, and that the US is going to continue showing improvement. They acquired a Canadian company, Progressive Waste Solutions, and are much bigger. They are not done yet. They want to continue to consolidate the industry, which is still extremely fragmented. Not a cheap stock, but has pulled off a little bit here. Dividend yield of 0.8%. (Analysts’ price target is $96.)

Garbage is relatively recession proof. Earnings were up 79%. Year-over-year sales are pretty good. Free cash flow is up 77%. Free cash flow yield at 3.5% is an improvement from 2.5% of last year. ROE is 9%. Dividend yield of 0.8%. (Analysts’ price target is $72.)

(A Top Pick Aug 4/15. Up 31.11%.)

Being taken over by a US company. The 2 of them are a pretty good match, and there will be some cost savings in the merger. It will make them a very important player in solid waste management all over North America. Trading close to a 52 week high as a result, but he thinks there is more upside potential post merger.

In the process of merging with Waste Connections (WCN-N). This has been a growth by acquisition story. Had some issues getting costs down and getting margins to the industry’s best levels. Stock price has been reasonably depressed, but with this merger they will have a much better track record. There is a lot of hope and there is probably good upside from here.

Being acquired. Waste collection is a mature industry, so M&A is always a theme in that sector. If you are a shareholder, you might as well Hold because you are probably going to get some operating levers in terms of cutting costs, giving you a lift over that.

If you look at some of the peers within waste management, such as Republic Services (RSG-N) or Waste Management (WM-N), these are stocks that are behaving quite well, and behaving much better than the market. Generally, when you have a merger like this, there are opportunities for cost savings and synergies. This is a sector that he would consider and take a look at. If you own the stock, he would probably let this play out a little.

(A Top Pick Feb 4/15. Down 4.18%.) Recently put themselves up for sale. Sometimes when that happens, it is because they have heard that someone is interested in buying them, so put themselves up for auction to get a better price. Thinks it is probably worth $6-$7 more in a take out. They generate cash flow across North America in US$, and with lower fuel costs helping their margins it wouldn’t be a bad trade for a big conglomerate to scoop it in and get a cash flow.

Announced they hired investment bankers with the view of selling themselves. It is cheaper than its US peers. They are not trading at the multiple of the US companies. It is up 7-8% despite the market being down. It is hard to say what will happen. He feels the value is 15% higher than it is trading at right now. He likes the company even if it does not get taken over.

(A Top Pick Feb 4/15. Down 14.44%.) Thought this was going to do very well because of lower fuel costs. Also, picking up garbage is a recession proof industry. They had some flooding in one of their regions, so missed one of their quarters. The stock is slowly working its way back. Still thinks it is a pretty good company. 2.2% dividend yield.

It is on his radar screen. They reported weaker than expected numbers. He likes the industry long term. There are high barriers to entry. Multiples in the industry have gone up over the last few years. The recent pullback put it back on his watch list. It generates a reasonable amount of free cash flow.

He looked at it a few times, but he worried about margin pressure. After the drop it is certainly more appealing than it was before. He wants to see another quarter before making a decision. They had higher than expected operating costs last quarter and management needs to tackle this. Long term they are a good prospect.

They have a lot of US business. He has it in one of his model portfolios because he likes the 60% revenue that it produces. They have also been benefiting from lower fuel prices. There is certainly lots of competition and they have to win contracts from customers and cities to collect the garbage. Their market share is big enough and they have the scale to compete. Recently raised their dividend. Business is good. A nice solid company.