We're Buying the Dip in This Recession-Resistant Holding

Symbol	Transaction Type	# Shares Traded	Recent Price $	Shares Owned After Trade	% Portfolio
WM	Buy	76	$215.35	880	3.4%

After you receive this alert, we will buy 76 shares of Waste Management WM at or near $215.35. Following the trade, the Portfolio will own 880 WM shares, roughly 3.4% of the Portfolio.

We are expanding the Portfolio’s exposure to Waste Management shares because, in our view, the recent decline from $237 to the current level offers a very favorable risk-to-reward entry point for the company’s sticky core waste business. That is also prompting us to upgrade WM shares to a One rating from Two as we enter the seasonally strongest time of the year for its core waste business. That same business is benefitting from disciplined pricing and increasing use of automation, a nice recipe that should lift margins for the legacy business.

Remember that, unlike cyclical industries that slow down during an economic downturn, people, regardless of economic conditions, still need their garbage collected. This translates into a remarkably stable revenue stream for Waste, and while not exactly recession proof, it is rather recession resistant. Not that we are seeing a dramatic downturn in the domestic economy per the latest rolling GDP forecasts and Tuesday's September Flash PMI data. But should the data over the coming months point to that, WM shares are likely to catch some renewed interest given the inelastic demand nature of that core business.

We are also in the seasonally stronger time of the year for Waste’s core business. Typically, the March quarter is the slowest revenue quarter for the company, with the June quarter up sequentially. However, it’s the second half of the year that has historically generated stronger revenue and earnings before interest, tax, depreciation, and amortization, or EBITDA.

As we think about Waste Management’s WM Healthcare Solutions business, which provides collection and disposal services of regulated medical waste, we should consider one of the reasons why we own Labcorp LH in the Portfolio. During Labcorp’s presentation at the Morgan Stanley Global Health Conference this month, Chairman and CEO Adam Schechter chalked the company’s increased volume to two main factors — an aging population and newly available tests that help understand patients' diseases better. Management also shared that its strategy to lean into specialty testing is driving not only testing volumes in those categories but also broader testing volumes as well.

Greater testing volume for Labcorp and its competitors means an expanding market for medical waste, which is a tailwind for the WM Healthcare Solutions business. Much like the residential waste business was years ago, the medical waste business is a fragmented one, and that offers Waste a nice combination of M&A and margin improvement opportunities.

That’s the collected opportunity we aim to capture by owning WM shares in the Portfolio, and it doesn’t hurt that the company has a penchant for increasing its annual dividend.

As we make this move with WM shares, we reiterate our $255 target, and we’ll reset our panic point for the position to $190 from $215. As WM shares move higher, we will lift our panic point accordingly.

More Pro Portfolio

(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)

At the time of publication, TheStreet Pro Portfolio was long WM and LH.