Tiger Woods, The PGA Tour, And… Trash?

| February 26, 2010 | 0 Comments

The PGA tour’s taken over the neighborhood.  Yep, it’s that time of year when the PGA tour makes its annual tour stop in Scottsdale.

To be honest, I love golf and over the years I’ve had some great times at the Phoenix Open.  If you’re a golf fan, you need to experience the famous 16th hole.  There’s nothing like it in golf.

The atmosphere is more football game than a golf tournament.

It’s where fans were showering Tiger Woods with beer after a hole-in-one.  It’s also where an orange was rolled across the green as Tiger was preparing to putt.  Not exactly your typical golf decorum.  But then again, Tiger hasn’t exactly lived up to the PGA’s standard of decorum either…

The 16th hole is what makes the Phoenix Open unique.  The number of people surrounding the hole is flat out impressive.  And the size of crowd throughout the entire event is massive.

You see, around a half million people pour into the TPC Scottsdale over six days.  It’s a logistical nightmare inside and out of the course.

Roads are closed and barricades are erected as the police try to control the mass of humanity rolling through the neighborhood.  And as a state patrol officer not so nicely informed me… the speed limit on a number of streets has been temporarily cut from 40 mph to 25 mph.  (I can’t wait to spend a day in traffic school paying this debt to society.)

This year we have a new tournament sponsor.  (If this isn’t a sign of the tough economic times I don’t know what is.)

The old sponsor FBR Capital Markets (FBCM), an investment bank, is out.  And the ultra sexy Waste Management (WM) is in.

That’s right, the best sponsor the Phoenix Open could find is a trash collector.  I guess things really are down in the dumps…

Ok, I’ve had my fun.

Let’s take a look at who Waste Management is and what they do.  Hey, if they’re in good enough financial shape to sponsor a PGA tour event, maybe they’re worth a look for your portfolio.

WM operates waste collection, transfer, recycling, disposal, and waste-to-energy services across North America.  Basically, they haul trash. Their $16 billion market cap makes them the big dog in the waste management industry.

Their business model keeps them from being tagged as either a growth or value stock.  The company’s shown some nice growth, but it’s looked at more as a value play.  This kept WM from falling as far as more cyclical stocks in 2008.  It’s also kept the stock from making huge gains as the markets recovered in ’09.

However, management’s committed to growing revenue and earnings. This gives the stock good growth potential as the economy recovers.

WM wasn’t immune to the recession.  In 2009, WM revenues fell $1.6 billion from 2008 levels to $11.79 billion.  And earnings per share fell from $2.22 to $2 over the same time frame.

Now management is looking forward to business conditions improving in 2010.  They expect to earn between $2.09 and $2.13 per share.  Clearly things are looking up.

WM’s real beauty is in the amount of free cash flow the company generates.  They’re projecting free cash flow of more than $1.2 billion in 2010.  This gives management the opportunity to find ways to increase shareholder value.

Management’s favorite ways to increase shareholder value is by paying dividends and buying back stock.

In fact, they recently announced an increase to their dividend… up to $1.26 in 2010.  At the current price of $33.03, WM’s dividend yield is a strong 3.8%.  And the company plans to spend another $685 million on stock repurchases in 2010.

Overall, WM’s management’s done a great job of turning a decidedly unsexy business into something you might want to jump into bed with… or at least consider adding to your portfolio.  They’ve shown they’re committed to driving home shareholder value with dividends and stock repurchases.

WM should deliver solid growth as the economy recovers.  That usually leads to an increasing stock price.  But if the economy takes another dip or recovers more slowly than expected, WM’s nice dividend and stable business will keep it from getting wacked along with more cyclical stocks.

Tags: , ,

Category: Stocks

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

Leave a Reply

Your email address will not be published.