No one, even Amazon, can disrupt this business

Can anyone tell me which businesses Amazon cannot disrupt anymore? Nowadays it seems Amazon is omnipotent and can destroy anything as it would like to. But there are a few things even Amazon cannot do much to change. Today I’m telling one, which involves something we all need in our daily life but cannot be dealt with via online service. So what is it? Waste Services! Every day, tons of wastes are produced that must be processed and disposed. Amazon cannot collect your waste for processing, right? That’s why it is safe to bet waste service companies are Amazon-proof ones that can continue to survive in the Amazonization world. Waste Management (WM) is such a company, one of the largest in this business. Here is a brief introduction to WM:  

 

Starting with a single garbage truck in 1968, Huizenga, a college dropout, built Waste Management Inc. into a Fortune 500 company. He bought independent sanitation engineering companies, and by the time he took the company public in 1972, he had completed the acquisition of 133 small-time haulers. By 1983, Waste Management was the largest waste disposal company in the United States.

 

After reaching all time high early this year, WM has stagnated and trended lower for a few months since Feb. As a contrarian investor, this has made me interested in it and I started to look into it a few weeks ago. What I found out was nothing short of amazing. Here are a few key stats that demonstrate how fundamentally great WM is doing:

• WM's P/E Ratio (13.9) is lower than 68% of other companies in the Environmental Services & Equipment industry.
• WM's Gross Margin (46%) is more than 85% of other companies in the Environmental Services & Equipment industry, which means it has more cash to spend on business operations as compared to its peers.
• The Return on Equity stands at a massive rate of 48% for WM, showing that it is able to reinvest its earnings more efficiently than 100% of its competitors in the Environmental Services & Equipment industry.

 WM is paying a reasonable dividend yield at 2.1% with a payout ratio only at a very low level of 28%, meaning its dividend is very safe and has more room to grow. It started to pay a dividend of $0.02 in 1998 and has increased it to $1.7 in the past 20 years, a massive 84 times increase. But I have to say, its track record isn’t perfect in my book. While it has never missed dividend in all these years, it did cut the divided a few times. But given its healthy cash flow and stable business, I bet it will further increase its dividend in years to come. I think this is really a recession proof business that can survive financial crisis much better than many other businesses and I don’t see how Amazon can disrupt it in anyway.

 

Of course, the best time to buy WM is when no one is interested in it. Since it reached the all time high end of Jan, it crashed together with the market and has been in a months-long sideway consolidating till its latest earnings report on Jul 25. I got it a few weeks ago and was thinking to write this up then. But I got distracted too much by too many other more interesting topics. After all, who really cares about the garbagy business!😉 😉 For me do caring it, I was lucky for a good timing as it has jumped over 10% following the latest good earnings report and it appears to try to break out through its peak around $90. Clearly it has broken out from the long sideway channel, a very bullish sign suggesting it is ready to move a lot higher from here. But short term, it is quite overbought and may cool down a bit. I think any dip (e.g. $85 or below) should be a great buy for long term.