“This stuff…” remarked “Rich Dad Poor Dad” author Robert Kiyosaki at a televised conference, while loudly waving some dollar bills before articulating his main point: “Cash is trash.” Well, in the case of environmental (and social) services firm Waste Management (WM), trash is cash. Based on its performance at the end-of-year 2022, that trash is worth just under $20 billion.
To be sure, WM stock – though powerfully relevant – might not seem the most viable of investment opportunities. As Barchart contributor Rich Asplund stated, the equities market responded positively following a favorable inflation report. Specifically, the May core Personal Consumption Expenditures (PCE) index increased on a year-over-year basis by 4.6%, slightly weaker than market expectations of 4.7% up.
Per Asplund, “[t]he deflator report showed that inflation is going in the right direction, with the headline deflator easing to +3.8% y/y from April’s revised +4.3%, and the core deflator easing to +4.6% y/y from April’s +4.7%.” As a result, the benchmark S&P 500 gained 1.23% on Friday while the Nasdaq was the biggest winner among the major indices at 1.45% up.
On that note, acquiring shares of consumer discretionary-based investments such as Guess (GES) might seem a shrewd though daring wager. Indeed, the University of Michigan’s U.S. consumer sentiment index moved to a four-month high, Asplund reminded Barchart readers.
Still, WM stock deserves consideration, especially for investors who haven’t quite bought into the recovery narrative yet.
Options Traders Like the Moat WM Stock Provides
Despite the overall positive implications for the consumer economy, options traders nevertheless appeared to target WM stock under the context of long-side intentions. For one thing, WM ranked among the top highlights in Barchart’s screener for unusual stock options volume.
Specifically, total volume reached 5,544 contracts against an open interest reading of 43,600. Further, the delta between the Friday session volume and the trailing one-month average metric came out to 250.44%. Drilling down, call volume hit 4,943 contracts against put volume of only 601. This pairing yielded a put/call volume ratio of 0.12, sharply favoring the bulls.
Per Barchart, the current put/call open interest ratio lands at 0.62, which still carries an optimistic profile. Notably, options flow data from Fintel disclosed a multi-sweep transaction involving purchased calls, a classic bullish setup.
Moreover, the beauty of the optimistic trade for WM stock centers on its financials. After a slight dip in revenue in 2020 to $15.22 billion (down 1.53% YOY), sales increased to $17.93 billion in 2021 and $19.7 billion in 2022. Following a solid performance in the first quarter of this year, Waste Management is looking at a trailing-12-month revenue tally of $19.93 billion.
Throughout the pandemic-impacted years (and even before that), the company remained profitable. As well, it consistently posted positive free cash flow. And that’s hardly surprising given that Waste Management commands a moat. As an interview conducted by Barchart content partner The Motley Fool explained, no one can just waltz in and secure land for waste storage purposes.
Good times, bad times, it doesn’t matter: humans produce waste and that needs to be taken care of somehow.
Waste Management Offers an Excellent Hedge Should Things Go Awry
As stated earlier, inflation appears to be moving in the right direction (downward), which obviously bodes well for consumer sentiment. Skyrocketing prices have been the bane of millions of households in the post-pandemic recovery process. Still, even Asplund acknowledged that not all factors point to an encouraging backdrop.
First, my Barchart colleague stated that “[t]he U.S. Supreme Court Friday struck down President Biden’s plan to forgive student debt, which is a negative factor for consumer spending when student loan payments are due to restart in October.”
Frankly, I don’t think investors appreciate the impact this framework may have on the broader economy. Despite the pressures of the COVID-19 pandemic, Americans insisted on opening their wallets, resulting in credit card debt hitting a record high. With the Supreme Court decision, a large segment of the populace must now deal with a massive reality check.
Second, Asplund mentioned that “…the Fed will remain worried about sticky core inflation, with the core deflator still at a very high +4.6% y/y, far above the Fed’s +2% inflation target.” And that might be the rub as the central bank attempts to substantively bring down inflation. Basically, it remains a very real possibility that policymakers can overdo it, leading to a recession.
To be fair, no one knows if a recession will materialize or not. Still, under that negative scenario, WM stock will be relevant. Irrespective of underlying conditions, humans will still produce trash. And that should allow Waste Management shareholders to sleep easy at night.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
