This Stock's Fall Could Be a Sign of Things to Come

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Though I'm not a shareholder in Waste Management (NYS: WM) , I've had the stock on my watchlist ever since I read this November 2010 article touting the company as the greatest dividend stock on the market.

So it was with particular surprise that while listening to The Motley Fool's Market Foolery podcast, I heard that the company got a serious haircut after its recent earnings announcement. All told, the stock has lost about 20% since hitting $38 per share in early July.

Even more shocking than the stock's drop was the reason for it: There's less garbage to pick up!

A bellwether?
Fellow Fools have been bullish on this dividend payer's stability, but upon hearing the news about garbage volume, I started to wonder what could cause such a drop. Here are two bearish scenarios -- with potentially divergent ramifications for your portfolio.

Scenario No. 1: Dark days ahead
A drop in garbage volume could be an indicator that there are simply less things to throw away. If there's less to throw away, the thinking goes, it's probably because there's less being consumed.

We all know that the U.S. consumer is the main driver behind our economy, so if consumption is down, that bodes poorly for the fate of our economy moving forward.

With all the worry about the U.S.'s still-high unemployment and credit downgrade, it's perfectly reasonable for us to worry that the economy -- and the stock market with it -- could be taking a serious dive in the not-so-distant future.

If you think this scenario is likely, then it may be time to get out of Waste Management and fellow garbage collector Republic Services  (NYS: RSG) , and into companies like Rubicon Minerals  (ASE: RBY) or Paramount Gold and Silver  (ASE: PZG) .

I picked those two latter companies because they both provide solid plays on the gold boom that's been taking place over the past 12 months. With investors wanting a safe haven for their cash, and the usual depositories (read: U.S. Treasuries) losing their stellar ratings, investors seem to think gold may be one of the only places where their money won't lose value.

Scenario No. 2: Roadmap to sustainability
A far more optimistic, but no less plausible, viewpoint could be that we Americans are finally getting the message about living sustainably. We may very well be spending as much as or more than we have in the past, but it's just producing far less waste.

It's not that hard to believe. Where once we had landfills of paper, we now have e-readers. Just a few years ago, a trip to the grocery store provided me with all of the plastic bags I needed. Now, with reusable bags in every checkout line -- and a $0.05 fee here in D.C. for using the plastic variety -- the area under my sink is far less cluttered with leftover bags.

If you believe this scenario is more likely, and you're looking for investing ideas to profit from it, fellow Fool Rick Munarriz is one step ahead. Calling out what he's dubbed the "sharing trend," Rick highlights three companies that are worthy of our attention.

  • Zipcar (NYS: ZIP) could help us live more sustainably by seriously cutting down on gas emissions. By having to jump through the mental hoop of reserving a car, users are likely to bunch all of their errands into one trip.
  • Coinstar (NAS: CSTR) is the parent company of video kiosk RedBox. When consumers rent these DVDs -- instead of buying them -- they create far less demand for the raw materials needed to keep pumping out the discs.
  • HomeAway (NAS: AWAY) , an online marketplace for vacation rentals, is seriously disrupting the time-share industry. Take a trip to any luxury destination, and you're sure to see remnants of some unprofitable and environmentally unfriendly building projects that occurred before the economic crisis. By revamping the vacation process, HomeAway has the potential to reduce silly construction booms.

Foolish takeaway
There's no way to know for sure which scenario is at play here. Most likely, it's a little bit of both. We'll have to check back in a few years to see how things have played out.

In the meantime, let me offer you access to a special free report called "Too Small to Fail: 2 Small Caps the Government Won't Let Go Broke." Regardless of the direction of the economy moving forward, investing with these two companies is a safer bet than you think. Read all about it, absolutely free!

At the time this article was published Fool contributorBrian Stoffelhopes for scenario No. 2, but is prepared to stomach No. 1. He does not own shares in any of the companies mentioned. The Motley Fool owns shares of Waste Management and Zipcar.Motley Fool newsletter serviceshave recommended buying shares of Zipcar, Republic Services, and Waste Management. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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