We recently compiled a list of the 10 Best Low Beta Stocks To Buy. In this article, we are going to take a look at where Republic Services, Inc. (NYSE:RSG) stands against the other low beta stocks.
After a rough few years, the market is coming together and is on a healthy trajectory. The recent Fed rate cuts triggered a lot of bullish sentiment toward the broader market. For example, on September 20, Business Insider reported that Brian Belski from BMO raised his S&P 500 price target for 2024 to 6,100 from 5,600, followed by the Fed’s recent rate cut and strong seasonal market data.
Moreover, Belski talked about broadening stock market gains and the increased likelihood of a soft landing for the U.S. economy. He finds current elevated valuations justified as he compared the situation to the mid-1990s when the market sustained high multiples.
In addition, Tom Lee of Fundstrat is bullish on the market for several upcoming years and expects the broader market to nearly triple to 15,000 by 2030. His bullish sentiment is driven by demographic shifts, millennial spending, and technology advancements. He mentioned the prime earning years of millennials and Gen Z, which mirror previous periods of high stock market returns. Furthermore, he also highlighted the role of technology in addressing global labor shortages and projects significant spending on AI and tech solutions.
Broadening Market Participation and the Outlook for Recession Risks
On September 24, Prashant Bhayani of BNP Paribas Wealth Management joined CNBC to discuss the current market conditions. He discussed the improving liquidity and noted the tight credit spreads, near-record equities, and steady lending. While U.S. hiring is slowing, he explained that rising unemployment is partly due to labor force growth, not just layoffs, which makes it different from past cycles. Bhayani stressed that employment data, like jobless claims, will be important in determining market outlooks.
On market valuations, Bhayani acknowledged some sectors are overvalued but sees broader market participation beyond AI-related stocks. He suggested that stocks could outperform bonds if a soft landing or no recession occurs.
Addressing concerns about potential triggers for volatility, Bhayani said that a credit event, similar to those seen in 2000 or 2007, could lead to significant market declines. However, current credit spreads and a healthy banking system support the soft landing view.
Our Methodology
For this article, we used the Yahoo Finance stock screener to identify over 30 mid to mega-cap stocks with a 5-year beta (monthly) between 0.2 to 0.8. Next, we narrowed the list to 10 stocks most widely held by institutional investors. The 10 best low-beta stocks to buy are listed in ascending order of their hedge fund sentiment and we used the beta as a tie-breaker as well.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A fleet of trucks carrying recyclable materials, highlighting the company’s transfer services.
Republic Services, Inc. (NYSE:RSG)
5-year Beta (monthly): 0.71
Number of Hedge Fund Holders: 48
Republic Services, Inc. (NYSE:RSG) is a major player in the environmental services sector, primarily focused on providing comprehensive recycling and waste management solutions. The company offers a wide range of services, including non-hazardous solid waste collection, advanced recycling, hazardous waste treatment, and emergency response services.
It has 13 million customers and averages 5 million pickups daily. Moreover, It has a fleet of 17,000 trucks, and 75 recycling centers, and has recycled 2 billion pounds of organics. The company offers comprehensive waste management solutions that prioritize environmental responsibility.
Its extensive infrastructure includes numerous landfills, recycling centers, and energy projects, which solidifies its role as an important player in promoting responsible waste disposal and resource recovery.
Republic Services (NYSE:RSG) is quite focused on its digital transformation, especially through its RISE platform to improve route optimization and safety performance. Additionally, the anticipated implementation of the MPower fleet management system is projected to generate $20 million in annual cost savings, which further strengthens the company’s profitability.
The company has already realized $45 million in benefits from advanced recycling technologies that reduce contamination and enhance operational efficiency. It also expects to add more than 50 electric vehicles to its fleet by year-end and has entered agreements with municipalities for electric collection services, which align with its environmental responsibility while creating growth avenues.
In Q2, Republic’s (NYSE:RSG) stock was owned by 48 hedge funds, valued at $1.65 billion, which brings the company to the 7th spot on our list of best low beta stocks to buy. Impax Asset Management is the company’s most significant shareholder with 1.44 million shares, worth $280 million, as of June 30.
ClearBridge Investments stated the following regarding Republic Services, Inc. (NYSE:RSG) in its Q2 2024 investor letter:
“We added two new names to the portfolio in the quarter. Republic Services, Inc. (NYSE:RSG) is a waste disposal company in the industrials sector whose services include non-hazardous solid waste collection, waste transfer, waste disposal, recycling and energy services. It is a stable-through-the-cycle compounder in a consolidated industry. The company’s end market is resilient, which gives us some confidence in the stability of its earnings through a recession. In the next few years, cash flow should grow at the high end of the range as Republic Services benefits from high-returning sustainability investments in polymer recycling and renewable natural gas, which also improve the company’s emission and circularity profile.
Republic Services continues to set ambitious goals around sustainability targets, such as increasing its renewable energy generation by 50% through the beneficial reuse of biogas. In addition, its 74 recycling centers process five million tons of materials per year and include a major polymers center for plastics. Notably, it is the first North American waste and recycling company with an emissions reduction goal approved by the Science-Based Targets initiative (SBTi).”
Overall RSG ranks 7th on our list of the best low beta stocks to buy. While we acknowledge the potential of RSG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is promising and trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.