Waste Management (NYSE:WM) has turned its business around over the last decade, changing its management and becoming a leader in recycling and waste to energy in the U.S., creating a long-term opportunity for investors, says Todd C. Ahlsten, Chief Investment Officer and Portfolio Manager at Parnassus Investments.
“We think management, as I mentioned, has improved dramatically in the last decade — good corporate governance, good thinking ahead, investing in next-generation recycling waste energy,” Ahlsten said. “The stock is in the low $30s, and we see downside into the mid-$20s if there’s a recession, and upside to well over $40 a share in the next three years if they execute on their plan, so we like the range of outcomes. The stock also has a dividend yield about 4%.”
Ahlsten also says Waste Management has made significant investments in waste to energy and capturing methane from landfill sites. He visited a landfill site in Altamont Pass in California, and he says they are producing liquefied natural gas and CNG there. He also highlights the company’s advances in worker safety, which translates into fewer accidents, less downtime and improved relationships with workers.
“When we look at this investment, it is increasingly relevant because we view waste disposal, recycling and waste energy as important long-term businesses. They have a wide business moat as landfills are hard to zone, and we think they have some great properties,” Ahlsten said. “On the ESG story, we like their investments in recycling and in waste to energy, and we think they’ve done some really good groundbreaking things in those sectors. So Waste Management really reflects our process; it’s a long-term investment.”
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