Mega-Billionaire Bill Gates Bought a Ton of This Stock Last Quarter

Bill GatesIn a Form 4 filed earlier this week, Cascade Investments announced it increased its ownership of Republic Services, Inc. (NYSE:RSG) with a purchase of 8.1 million shares at $26.80 a piece, putting the total shares owned by Cascade up to 86.1 million. Cascade now owns over 23% of the outstanding shares of Republic Services. Cascade has been steadily increasing its stake in Republic since 2002. Check out the history of insider buys at Republic. Cascade Investments is the investment company responsible for managing the majority of Bill Gates’s wealth. The firm is controlled by Gates and managed by Michael Larson.

Republic is down almost four percent year to date after seeing sizable knockdowns in its stock twice – one after the announcement of its CFO’s retirement and another after full year 2012 guidance was reduced. Revenue is expected to remain relatively flat for this year and 2013 as soft markets put pressure on disposal volume and recycling prices. Republic is looking to fuel future growth with acquisitions, having completed $73 million of deals through July with a full-year target of $100 million.

Other key waste management servicing companies in the industry include Waste Management, Inc. (NYSE:WM)Waste Connections, Inc. (NYSE:WCN), Progressive Waste Solutions Ltd (NYSE:BIN) and Veolia Environment Ve SA (NYSE:VE). Waste Management is expected to see organic revenue growth of 1.5% in 2012 on the back of core collection and disposal pricing increases. The removal service company is targeting cost cutting of 2-4% over the longer term, as commercial and industrial volume drive growth. One of the big headwinds for Waste Management and the other removal servicers is elevated fuel prices, where wide swings in pump costs can has a direct impact on EPS. Waste Management does pay a 4.6% dividend yield, the highest of our five stocks expect for Veolia.

Waste Connections is expected to see revenues up 8% in 2012, with rising prices combating a declining volume. One possible driver going forward for Waste Connections, and the industry, is an increase in construction and demolition due to a rebounding housing market. Waste Connections is expected to use its increasing cash flow for acquisitions and share buybacks, with a repurchase target of 4-5% annually. This trash company’s dividend is the lowest of our five stocks with a yield of 1.3%.

Progressive Waste is only down 5% year to date despite missing earnings by at least 6% during the last three quarters. Although sales will be down this year, next year is expected to rebound nicely with 14% growth. Progressive, a U.S. and Canadian trash remover, recently acquired Choice Environmental Services – a Florida sanitation and waste removal company – to expand its footprint, with further acquisitions expected to be the key to growth. Despite the current incalculable P/E of Progressive, it already trades at a forward P/E of 16x, which puts it in line with the industry.

Veolia Environment is down over 10% during the last twelve months, with the industry up almost 3%. The move comes as Veolia sales are expected to be down 8% from last year, and 2013 outlook is bleak at only 2% expected sales growth. Fitch also recently lowered its rating from ‘stable’ to ‘negative’ on Veolia. Although the waste company pays a high dividend of over 9%, its negative earnings has put it at a negative payout ratio and might force the company to further trim its yield. Not only does Cascade love Republic Services, but notable hedge funds have also gotten a piece of the action. These include the likes of Israel Englander, D.E. Shaw and Adage Capital.

We would be concerned about Veolia’s high dividend given its poor earnings. Veolia has already cut its dividend by over 50% earlier this year. Waste Connections trades at 23x earnings and Progressive and Veolia trade with incalculable P/E ratios. Given the uncertainty of the other waste companies we would rather stick to investing in the two industry leaders, Republic and Waste Management. The other trash removal companies all operate on a much smaller scale than the industry leaders, where Republic and Waste Management are the only two with market caps above $10 billion.

Waste Management and Republic Services trade in line on a P/E basis at 16x, and both are the top solid waste servicers in the U.S., respectively. Each company also sports similar revenue valuations, with expected earnings growth nearly identical as well. The key differentiating factor between the two is their yields. Republic pays a dividend yield of 3.5% and Waste Management pays 4.6%. Check out our other analysis on whether Waste Management is a better dividend stock than Republic.

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