Sustainable Solutions: How to Invest in Canada’s Waste Management Leaders

Waste management stocks like GFL could serve as safe havens.

| More on:
Clean energy

Image source: Getty Images

There are plenty of economic concerns looming over investors and consumers right now. It may be fair to say that the market isn’t in a strong position, especially since valuations are rising while concerns about inflation and a recession persist. 

With these risks in mind, investors should seek some protection in stocks that tend to perform well regardless of the economic cycle. Here’s a closer look at what’s happening in the economy and why Canada’s top waste management and garbage disposal companies could be the best place to hide. 

Economic outlook

The Bank of Canada raised interest rates by another 0.25% this week. This rate hike was a surprise, since most economists believed the central bank’s fight against inflation was going well and rates wouldn’t need to go much higher. But now that rates and inflation look much more persistent, investors need to seek out ways to generate better income or protect their capital. 

In Canada, one of the safest sectors of the economy is waste management. This sector has little competition and is highly fragmented. That means large, publicly listed firms can swoop in and grow through acquisitions. 

Meanwhile, the sector’s earnings potential is relatively stable.  Waste management companies have fixed contracts with municipalities and corporate landlords. These services are essential, so a recession doesn’t necessarily mean revenue or profits will drop. 

This is why Canadian investors can add some exposure to the waste disposal sector during a volatile market cycle. Here are the top two waste management companies you should watch in 2023. 

GFL 

GFL Environmental (TSX:GFL) is a hidden gem. The company has rapidly grown into one of the largest environmental services firms in the country. It now offers a range of services, from waste management, infrastructure, to soil remediation. All these are essential services that are disconnected from the economic cycle. 

The stock is up 26.9% year to date, which is better than the S&P/TSX Composite Index over the same period. The TSX Index is up only 2.5% since January 2023. 

In 2023, the company expects to deliver $7.5 to $7.6 billion in total revenue. It also expects approximately $700 million in adjusted free cash flow (FCF). Based on these estimates, GFL stock is currently trading at a price-to-revenue ratio of 2.4 and a price-to-FCF ratio of 26.1. That’s a fair price for a robust blue chip stock. 

Waste Connections

Waste Connections (TSX:WCN) is another blue chip waste management company that should be on your radar. The stock is trading at a 52-week high but its price-to-earnings ratio is still reasonable at 41. 

Waste Connections has also seen robust growth in recent years. Revenue is up 8% compounded over the past five years, which is effectively 46.5% higher over this period. The company has also delivered double-digit dividend growth rates over this period, with the most recent dividend hike coming in at 10.9%. Keep an eye on this rock-solid stock. 

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 Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

edit Sale sign, value, discount
Stocks for Beginners

These 3 Growth Stocks Are on Sale and Set to Surge

Some growth stocks are on sale right now that offer massive long-term potential for investors. Here's a trio to consider…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Why Canopy Growth Stock Could Double in 2024

Canopy Growth (TSX:WEED) stock saw its share more than double in the last two weeks. So, can it do it…

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »