Waste Connections (TSX:WCN)(NYSE:WCN) is a prime example of what you’re likely to find in one of your run-of-the-mill smart-beta funds. The smart-beta strategy shows that you don’t need to take on excessive amounts of volatility to achieve above-average results over the long run. Over the past five years, the stock has more than doubled, surging over 130%, while exhibiting less volatility than the broader stock market (WCN stock boasts a 0.65 beta).
Waste Connections: The perfect TSX stock for all seasons
Undoubtedly, waste collection is a dirty business. But it’s essential, regardless of where we are in the market cycle.
In a way, Waste Connections can be viewed as the ultimate defensive play that withstand even the worst economic downturns or recessions. The stock pulled back modestly by around 25% during the February-March 2020 market crash before rebounding quickly. Even during the pandemic, when most people stayed at home, a lot of waste was generated.
Waste Connections isn’t just a defensive stock, though. It actually fares well during times of economic prosperity as well, making it one of the few Canadian stocks that you can stash in your portfolio for all seasons!
With the economic reopening underway and a potential post-pandemic spending boom that could take hold, the amount of waste could surge, and Waste Connections stock’s momentum could stand to reaccelerate.
An industry consolidator
Over the past several months, WCN stock has stalled out in a “sideways correction.” The stock now trades at 4.5 times book value and 5.7 times sales, both of which are pretty modest, given the calibre of low-volume business you’re getting and the favourable macro environment that could be on the horizon.
It’s not just the brighter prospects that have me pounding the table on Waste Connections stock; it’s the M&A opportunity in the fragmented North American trash-collection industry. As fellow Fool contributor Chris MacDonald astutely put it in his recent piece, Waste Connections’s prudent consolidation strategy could propel its margins to much higher levels over time. This, when combined with the company’s defensive traits, makes the stock well worth paying up for, especially in times of great uncertainty.
Of late, we’ve heard bearish pundits talk about “double-dip recessions,” while bulls pounded the table on a “Roaring ’20s” environment. Undoubtedly, it could go either way. The pandemic isn’t over yet. The insidious “delta” variant could postpone the spending boom and send us right back into lockdown, despite Canada’s accelerated vaccine effort.
It’s tough to call what will happen next. Fortunately, prudent investors don’t need to make a call with a name like Waste Connections. It’s poised to generate solid operating cash flows, regardless of where we’ll be at year-end.
If you can snag even a modest discount on shares of Waste Connections, you should probably pounce at the opportunity. Waste Connections is one of those wide-moat defensive growth businesses that you can feel comfortable topping up whenever it takes a bit of a pullback or prolonged period of stock price consolidation.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.