Waste Connections, Inc. (WCN): Breakout in Niche Waste Management Player Could Lead to 13% Gains by Year-End

In his book One Up On Wall Street, Peter Lynch advocated looking for companies in unattractive industries. Here’s one with a bullish chart for you to consider: Turning garbage collection into a multi-billion dollar business, Waste Connections, Inc. (NYSE:WCN) provides waste collection, transfer, disposal and recycling services.

Although it is the smallest of the “big three” public U.S. waste management companies by market cap, its recent share performance has handily outpaced the competition.

Over the past three months, the company’s stock is up about 20% while shares of the nation’s largest trash hauler, Waste Management, Inc. (NYSE:WM), are ahead only about 5%. The second largest publicly-listed waste services company, Republic Services, Inc. (NYSE:RSG) has gained about 4%. Waste Connections, Inc. (NYSE:WCN)’ recent operating margin was 19.5% compared to the industry average of 13.2%.

One factor that has helped set the company apart is its focus on garbage collection and disposal services in the secondary markets of the rural and suburban Western U.S., rather than the big cities served by its competitors. With minimal competition, the company has achieved strong pricing power.

In addition to occupying a strong market niche, Waste Connections, Inc. (NYSE:WCN) recently expanded its services through last year’s acquisition of R360 Environmental Solutions, a leader in oil and gas waste disposal. The company now generates revenue from cleaning contaminated oil fields, recuperating oil from storage tanks and washing drilling facilities.

As a potential bonus for shareholders, Waste Connections may seek master limited partnership (MLP) status to take advantage of tax efficiencies. MLPs typically reward shareholders with high dividend yields.

With a continued economic recovery — which should generate more goods and a need for additional garbage collection — Waste Connections, Inc. (NYSE:WCN) could see strong growth ahead.

From a technical perspective, the stock’s chart is bullish.

Rising steadily off the July 2010 low of $22.35, shares have formed a major uptrend and have nearly doubled to date.

Starting in the summer of 2011, and persisting for most of 2012, the stock was caught in a rectangular holding pattern. Support near $28.38 represented the bottom of the rectangle. Resistance around $35 marked the top.

In October 2012, shortly after testing support near $28, the stock began a steady ascent, forming an accelerated uptrend line.

The rectangle was bullishly broken in early April 2013, when shares moved past $35 resistance. The stock has since climbed at a steady clip.