Motley Fool: Garbage giant anticipates tidy success

Waste Management (NYSE: WM), the Houston-based garbage giant, didn’t have the rosiest 2011, but 2012 may be better.

In our sluggish economy, consumers and businesses can’t cut garbage collection from their budgets, but a softer economy does mean less stuff is made and consumed. As a result, there’s less waste to be collected. An economic turnaround would push Waste Management’s volumes in the right direction.

For a business like waste collection that’s not growing rapidly, pricing is a key component. Waste Management targets its price increases to be between half and 1 percentage point above the consumer price index. That’s significant, and it reveals a big part of Waste Management’s value proposition: Because it offers customers compelling service, it has been able to raise prices ahead of inflation.

Finally, the company has been investing in growth businesses, such as technologies that convert waste to energy, as well as putting money toward efficiencies and long-run cost reductions. These may be great places to invest shareholder money, but only if they pay off.

In the meantime, Waste Management is rewarding shareholders with a dividend yield above 4 percent. (The Motley Fool owns shares of Waste Management, and has recommended it.)

Ask the Fool

Q: What are “catalysts” that I’ve heard stock analysts mention? – J.R., Keene, N.H.

A: A catalyst is a factor or event that will prompt a change in a stock’s value. It’s clearly good to invest in stocks trading below their fair value, as they should eventually catch up. But when and why will they do so? When analyzing a potential investment, it can be useful to figure out what catalyst(s) there are and when they might materialize, as the catalysts will help the stock become fully valued.

A catalyst for a pharmaceutical company could be Food and Drug Administration (FDA) approval of a promising new drug. One for a software company might be the release of a major new operating system. For a manufacturer, an effective catalyst might be the introduction of an exciting new product. The end of a recession or a housing boom can also be a catalyst, as can changes in laws or regulations. Looking for catalysts can be profitable.

My dumbest investment

I recently decided to take a chance on ExxonMobil, since it was the richest, or second-richest company in the world. Since then, my small investment has been in the hole. I thought it was successful enough that I wouldn’t have to worry too much about it, but red is the only color it’s wearing. – N.T., Roseburg, Ore.

The Fool responds: Patience, grasshopper. Great stocks and strong performers often fall or remain stalled for a while. Invest in stocks for the long haul, with money you won’t need for at least five or more years. Don’t expect a stock to perform just because the company is big and rich, though. The company needs to be healthy and growing, ideally with some competitive advantages.

ExxonMobil fills that bill. You also want to buy stocks that seem undervalued, so that they’re more likely to go up than down. ExxonMobil seems attractively priced these days, and offers a dividend yield near 2.3 percent, as well. Don’t have all your eggs in one basket, either. Diversify your money across a handful of stocks, or more.