#$wcn

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers:

KKR, Ticker: $KKR

KKR, $KKR, started to slow in its move higher as it passed the February high in July. It morphed into a consolidation range and held there until breaking higher at the end of last week. The RSI is in the bullish zone with the MACD crossed up and positive. Look for continuation to participate…..

Old Dominion Freight Line, Ticker: $ODFL

Old Dominion Freight Line, $ODFL, continued to move off a March low until meeting resistance in early September. Since then it has moved in a broad consolidation. It ended last week at resistance with the RSI rising in the bullish zone and the MACD positive and climbing. Look for a push over resistance to participate…..

The Bancorp, Ticker: $TBBK

The Bancorp, $TBBK, broke over resistance in May and ran to a top in early June. It pulled back from there and settled eventually into a consolidation. It ended last week at resistance with the RSI rising in the bullish zone and the MACD lifting off of zero. Look for a push through resistance to participate…..

Waste Connections, Ticker: $WCN

Waste Connections, $WCN, spiked up in August and could not hold the move, ending the recovery from the March dip. It ran sideways for over 3 months before breaking higher at the end of last week. The RSI is in the bullish zone with the MACD lifting off zero. Look for continuation to participate…..

Walmart, Ticker: $WMT

Walmart, $WMT, whipped around after dropping in March. It moved in a wide range for some time until making a new high in April. From there it pulled back to the 200 day SMA and did not rebound until July. It stalled at the prior high and held until a breakout into September. It pulled back again and has held in a higher range. It comes into the new week at resistance with the RSI rising in the bullish zone and the MACD crossing up. Look for a push over resistance to participate…..

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After reviewing over 1,000 charts, I have found some good setups for the week.  These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which saw an eventful first week of November with a Presidential election, a FOMC meeting and a non-farm payrolls report to attack markets, result in them reacting like champs with impressive moves to the upside all week.

Elsewhere look for Gold to continue its move higher while Crude Oil consolidates in a broad range. The US Dollar Index looks to move lower in consolidation while US Treasuries remain in a downtrend. The Shanghai Composite looks to continue to consolidate while Emerging Markets break out to the upside.

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers:

Alcoa, Ticker: $AA

Alcoa, $AA, has been on a two year path lower with a few consolidations along the way. In October it made a higher low in this path and then started higher on big relative volume. The RSI is climbing in the bullish zone with the MACD crossed up and positive. Look for continuation to participate…..

American Tower, Ticker: $AMT

American Tower, $AMT, was in a steady rising trend until it accelerated to a top in September. It pulled back from there through the 50 day SMA and has been consolidating under resistance. The RSI is rising in the bullish zone with the MACD moving higher and positive. Look for a push over resistance to participate…..

Cigna, Ticker: $CI

Cigna, $CI, has been bouncing along forming a bottom since April. It ended last week making a higher high, a possible reversal. The RSI is rising and bullish with the MACD moving higher and positive. Look for continuation to participate…..

Gardner Denver Holdings, Ticker: $GDI

Gardner Denver Holdings, $GDI, moved from a December low to a peak in May. It pulled back from there to a bottom in early September and bounced. Another test there and it is rising again. The RSI is rising in the bullish zone and the MACD is positive and moving up. Look for continuation to participate…..

Waste Connections, Ticker: $WCN

Waste Connections, $WCN, moved form a December low to a top in July. It pulled back from there and has been consolidating under resistance. Friday it broke through. The RSI is rising in the bullish zone with the MACD lifting and positive. Look for continuation to participate…..

  After reviewing over 1,000 charts, I have found some good setups for the week.  These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which with October options expiration complete, saw that equity markets had a solid week holding near recent highs with good moves higher.

Elsewhere look for Gold to continue to build its bull flag around 1500 while Crude Oil consolidates. The US Dollar Index continues to move lower while US Treasuries pullback in their uptrend. The Shanghai Composite looks to pullback in consolidation while Emerging Markets pull back in their short term move higher.

EARNING UPDATE $WCN Waste Connections, Inc. for quarter ending q_Jun18 – Revenue grew, Margins expanded

[s2If !current_user_can(access_s2member_level0)]Please login to read the earning update on WCN [lwa][/s2If][s2If current_user_can(access_s2member_level0)]Waste Connections, Inc. reported earnings (EPS) of 0.52 per share for the quarter ending q_Jun18. This is vis-vis 0.47 per share for the previous quarter ending q_Mar18, a growth of 10.6 %. Compared to last year same quarter (q_Jun17), earnings…

EARNING UPDATE $WCN Waste Connections, Inc. for quarter ending q_Dec17 – Revenue fell but Margins expanded

[s2If !current_user_can(access_s2member_level0)]Please login to read the earning update on WCN [lwa][/s2If][s2If current_user_can(access_s2member_level0)]Waste Connections, Inc. reported earnings (EPS) of 1.19 per share for the quarter ending q_Dec17. This is vis-vis 0.47 per share for the previous quarter ending q_Sep17, a growth of 153.2 %. Compared to last year same quarter (q_Dec16), earnings…

A picture of Republic Services’ Apex landfill in Las Vegas -- the busiest one in the country. Image Source: Valuentum Securities

It may not be a glamourous business but it is a good one.

Pricing emanates from disposal operations – that’s what industry experts say. Waste has to go somewhere, and therefore whoever has the disposal operations sets the bar with respect to pricing from transfer facilities all the way through collections. After all, garbage pick-up operators won’t be in business for long if they pay more to dispose of waste than they charge to pick it up. Industry economics in the waste industry are relatively easy to understand.

As for the players, Waste Management and Republic Services have the largest disposal operations in the US. At the end of 2014, Waste Management owned or operated 252 landfill sites, the largest network of landfills in the country. That number stands at 189 for Republic Services and 58 at number three, Waste Connections. These players dominate the municipal solid waste industry and will for some time to come. We view disposal pricing as having oligopolistic tendencies, even if collection operations face some of the most intense pricing competition of any industry.

Let’s first start with our concerns. For those that remember Allied Waste, which was bought by Republic in mid-2008, early last decade the company suffered from significant underinvestment of its truck and equipment fleet as it was saddled with debt from its acquisition of Browning-Ferris in 1999. We’ve always been of the debt-averse persuasion, even for steady-eddy businesses like those in the waste industry, which are often more cyclical than many observers understand. For one, roll-off volumes, which can be as much as one third of collection operations, ebb and flow with the construction cycle, while commercial collection is tied to business formation and health. 

Regardless of how recession-resistant the waste industry may be, net debt is still something worth watching closely. At Waste Management, net debt stood at $8.83 billion at the end of the second quarter of 2015, while that mark stood at $7.45 billion at Republic Services. Waste Connections is a much smaller player, but it, too, holds a net debt position of about $1.96 billion at the end of March 2015. Granted, it is not the size of the debt load that matters, but whether a company has the capacity to continue to service it, but leverage can have significant implications on a company’s share price during the trough of the economic cycle and especially during periods of tightening credit conditions. It should not be surprising that companies with the highest levels of leverage suffer the worst during challenging economic and credit conditions.

That having been stated clearly, it’s fantastic to see industry players maintaining discipline as they collectively push prices higher. In Waste Management’s second-quarter report, the firm noted that core price expanded 4.1%, while in the same quarter, Republic Services drove core price 3.8% higher. Such strength translated into an improvement in both firms’ EBITDA margins on a year-over-year basis during the period. At Waste Management, free cash flow increased $245 million in the second quarter of 2015, after excluding proceeds from divestitures in 2014, while Republic upped its adjusted free cash flow guidance for all of 2015, to the range of $720-$745 million (was $710-$740 million). Lower diesel fuel prices are helping and may be here to stay.

We’re often asked why we like Republic better than Waste Management, and the answer is that we like both companies. However, we chose Republic because the firm registered a 9 on the Valuentum Buying Index in July 2012 when it was trading in the mid-$20s per share (it's now over $40 per share), and we still think the company has a lot of value to extract from the Republic-Allied combination. We don't dislike Waste Management or Waste Connections for that matter. We just like Republic a bit more, that's all. As I said of the Republic-Allied deal back in 2008:

"The value of the landfills is going to do nothing but increase down the road," said Brian Nelson…in Chicago. "Ten years down the road, we're going to be looking back at this transaction and saying this is a pretty savvy move because of suburban sprawl, because of population growth."

We continue to like Republic, and while its Dividend Cushion ratio speaks of heightened risk due to its massive debt position, we won’t be disposing of this Best Ideas Newsletter portfolio holding anytime soon. Don’t expect huge returns from this idea, but Republic Services remains our favorite play in the waste industry. 

Read more about Valuentum’s dividend growth analysis here. Thank you for reading!