A new year is rapidly approaching and that means that it's a perfect time to sit down with some of the stocks you own -- or, perhaps, are thinking about buying -- to figure out what 2012 may bring.
Today I'm going to take a look at Waste Management (NYS: WM) , the Houston-based garbage giant that couldn't quite keep up with the rest of the market in 2011. Could 2012 promise sunnier times for Waste Management? Let's dig in.
The tale of the tape
Expected Five-Year Growth
Source: S&P Capital IQ.
The keys for 2012
Investors will obviously want to keep an eye on all facets of Waste Management as it forges ahead, but I think there are three areas that deserve extra focus: the economy, pricing, and growth initiatives.
In the immortal words of Bill Clinton: "It's the economy, stupid!" Sure, it may seem like that's less of a concern with a stodgy ol' garbage-handling company, but be careful with that assumption. Consumers and businesses are going to be hard pressed to cut out garbage collection from their budgets, but a softer economy means less stuff is made and consumed, and, as a result, there's less waste to be collected. The economy has hardly crippled Waste Management, but an economic turnaround would push Waste Management's volumes in the right direction.
For a business like waste collection that's highly penetrated and not growing by leaps and bounds, pricing is a key component. Waste Management targets price increases of 50 to 100 basis points above the consumer price index. That's significant and it reveals a big part of Waste Management's value proposition -- because it offers customers a better service than competitors, it has been able to raise prices ahead of inflation.
But investors need to keep an eye on the company's success in its pricing. If Waste Management starts to look like it's no longer able to push through those above-inflation price increases, it could mean that competition is getting tougher to beat. And there's plenty of competition to choose from, including Republic Services (NYS: RSG) and Waste Connections (NYS: WCN) among mainline waste collectors, as well as Clean Harbors (NYS: CLH) and Stericycle (NAS: SRCL) among specialty waste and clean-up companies.
Finally, investors will want to watch for signs that the spending that Waste Management has been doing is paying off. The company has been investing in growth businesses -- such as 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, and so investors should watch for positive revenue and earnings contributions from these initiatives in 2012.
The one number I love
As a Waste Management shareholder myself, there's a lot that I like about the company. But one number in particular that I'm a big fan of is 4.4%. That, of course, is Waste Management's current dividend yield. But you don't have to stick to the waste-collection industry to find great dividends for 2012 and beyond. In fact, you can find a bunch of high-quality dividends in The Motley Fool's special report: "Secure Your Future With 11 Rock-Solid Dividend Stocks."
At the time thisarticle was published The Motley Fool owns shares of Clean Harbors and Waste Management. Motley Fool newsletter services have recommended buying shares of Waste Management, Republic Services, and Stericycle. Motley Fool newsletter services have recommended creating a write covered strangle position in Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer owns shares of Waste Management, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.