WM

Thinking Slow: 3 Research Blind Spots That Changed the Investment World

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Dear members: — Daniel Kahneman in his text Thinking, Fast and Slow (1) divided the human psyche into two systems. The first system is instinctive and emotional, often set on autopilot, while the second system is slower and more logical, requiring a calculating conscious. Many of the maxims the investment world takes for granted today suffer from conclusions that are made rapidly, almost without thinking, driven by our first system, creating what I call research blind spots. — In World War II, Allied bombing raids were suffering from very high casualty rates. It was estimated that for those pilots that were flying at the beginning of the war, only about 10% survived, a terrible loss rate. Bombing was crucial to the Allied … Read more

Waste Management Grows Adjusted Operating EBITDA Double Digits in Second Quarter

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Image Source: TradingView By Brian Nelson, CFA On July 28, Waste Management (WM) reported second quarter results that came in better than expected on both the top and bottom lines. Adjusted revenue increased 19% year-over-year, to $6.43 billion, while adjusted income from operations came in at $1.215 billion, up from $1.075 billion in the same quarter a year ago. Adjusted operating EBITDA increased 18.9%, to $1.923 billion. Adjusted net income came in at $777 million, up from $732 million in the second quarter of 2024, while adjusted diluted earnings per share of $1.92 was 6% higher than the quarterly mark last year. Management had the following to say about the results: As we described at our recent Investor Day, WM … Read more

3 Undervalued Stocks to Consider Buying Now

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Dear readers:   With the markets retracing most of their recent drawdown, we’re taking a victory lap as we didn’t panic, nor should have you. We highlighted our wait-and-see approach amidst the worst of the pullback, and we expect the Magnificent 7 (large cap growth and big cap tech) to continue to propel the markets higher, as they have done.   We’ve been busy rolling valuation models as we finetune our assumptions for a great number of companies under coverage. While doing so, we came across three undervalued stocks that are also included in the simulated newsletter portfolios. We think they’re prime for highlight.   The three stocks are UnitedHealth Group (UNH), Nvidia (NVDA) and Alphabet (GOOG). We spend a lot of time on discounted cash-flow valuation, … Read more

Magnificent 7 Earnings Reports Not Bad Thus Far

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By Brian Nelson, CFA   Shortly after Trump’s Liberation Day, where the President unveiled lofty tariffs on numerous countries, we released our wait-and-see outlook for the equity markets, which thus far has proven to be the right move, with the markets largely recovering from the depths reached in April. The S&P 500 (SPY), for example, is down just 3.3% year-to-date, excluding dividends.   A lot has happened since Liberation Day, including easing of tariffs to a 10% baseline for most, if not all, countries, with the key exception of China, where tariffs remain extremely elevated and prohibitive. Many countries are now reportedly negotiating trade agreements with the White House, and we expect China to be added to that list soon, even if … Read more

Trump Tariffs Higher than Expected; What We’re Doing

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By Brian Nelson, CFA The Trump tariff increases came in larger than what we were expecting, and it remains to be seen how they will flow through the global economy, as we monitor potential retaliatory tariffs from other countries. As it relates to the equity markets, we’re taking a wait and see approach at the moment as we monitor new policy changes related to trade, immigration, fiscal (tax), and regulations. In short, we’re not overreacting to the sell off as we won’t have a great handle on the tariff impact to companies for a few quarters when they report results post-tariff increases. That said, we’re expecting continued market volatility, with meaningful risk to the downside, before trade uncertainty alleviates in … Read more

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

Waste Management to Acquire Stericycle

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Image: Waste Management’s shares have done quite well the past 12-18 months. By Brian Nelson, CFA On June 3, Waste Management (WM) confirmed a prior report from the Wall Street Journal that it would acquire medical waste services company Stericycle (SRCL). The news comes a week or so after Stericycle said it was exploring a sale of the company. Waste Management will acquire Stericycle for $62 per share in cash, or for an enterprise value of ~$7.2 billion after considering Stericycle’s net debt. The agreed-upon price represents a ~24% premium to the company’s 60-day volume weighted average price as of May 23, 2024, or the last trading day before the report that made public Stericycle was up for sale. There … Read more

Republic Services Issues Solid Guidance for 2024

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Image Source: Republic Services By Brian Nelson, CFA On February 27, trash taker Republic Services (RSG) reported excellent fourth-quarter results that showed beats on both the top and bottom lines. Total revenue advanced 8.6% in the quarter, consisting of 5.7 percentage points of organic growth and 2.9 percentage points coming from acquisitions. The firm’s pricing initiatives continue to bear fruit, with core price on total revenue increasing 7.2% in the quarter. Volume increased revenue by 0.3% in the period. Thanks in part to its pricing strength, the firm’s adjusted EBITDA margin increased 260 basis points from last year’s quarter. Adjusted earnings per share advanced 24.8% in the quarter, a very strong showing. Republic Services is one of our favorite industrial … Read more

We Remain Bullish; Is This 1995 – The Beginning of a Huge Stock Market Run?

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Image: Large cap growth stocks have trounced the performance of the S&P 500, REITs, and bonds since the beginning of 2023. We expect continued outperformance in this area of the market. By Brian Nelson, CFA We’re now roughly four years past the depths of the COVID-19 meltdown, where equities collapsed in February and March of 2020. As the markets began to recover through 2020, our long-term conviction in equities only grew stronger. We think the biggest risk for long-term investors remains staying out of the market on the basis of what could be considered stretched valuation multiples. As we outlined heavily in the book Value Trap, valuation multiples hardly tell the complete story about a company and often omit key … Read more

Waste Management’s Pricing Power Is Fantastic, Sustainability Initiatives Are Noble

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Image Source: TheInvertedFan By Brian Nelson, CFA Industry economics in the municipal solid waste industry are generally easy to understand. Industry pricing power essentially emanates from disposal operations. Waste generated, for example, must end up somewhere, and therefore whichever entity has the disposal operations has the power to set the bar with respect to pricing, directly or indirectly, from transfer facilities all the way through collections within certain regions. After all, garbage pick-up operators won’t be in business for long if they have to pay more to dispose of waste than they charge to pick it up. It may not be a glamourous business, but it is a very good one, and those with disposal operations tend to rule the … Read more