Is Waste Management, Inc. (WM) a Good Stock to Buy?

Waste Management, Inc. (NYSE:WM), the $20 billion market cap trash and recycling collection services company, got off to a slow start for the year going by its 10-Q for the first quarter of 2013. During that quarter, revenue and earnings both came in about flat versus a year earlier. It makes sense that the company’s business would be more or less stable over time; however, markets have liked the stock enough that its current valuation represents a trailing earnings multiple of 24- a pricing at which we’d generally like to see a company with sustainable double-digit earnings growth in order to justify the valuation. Wall Street analysts actually predict that business will pick up next year, and so the forward P/E is 18, but we put only limited faith in sell-side projections and of course Waste Management, Inc. (NYSE:WM) would have to continue to do well even if it did hit that target.

The stock could be of some interest to income or defensive investors, with a beta of 0.7 and with Waste Management, Inc. (NYSE:WM)’s quarterly dividend payment of 36.5 cents per share resulting in a yield of 3.5%. However, even in these cases we think that the investors should prefer cheaper offerings, and would note that the company has a fairly high payout ratio at current earnings levels which could prevent Waste Management, Inc. (NYSE:WM) from increasing its dividend payments by much in the future.

As part of our work researching investment strategies, we track quarterly 13F filings from hundreds of hedge funds and other notable investors; we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). We can also consult our database to track interest in individual stocks over time, and can see that the Bill and Melinda Gates Foundation Trust owned almost 19 million shares of Waste Management, Inc. (NYSE:WM) at the end of March (see more stocks the trust owns). Billionaire Mario Gabelli’s GAMCO Investors reported a position of 1.1 million shares (find Gabelli’s favorite stocks).