As AI causes ripples and waves through the broad markets, some investors might be ready to seek shelter in a name like Waste Connections (TSX: WCN), a lowly correlated (0.48 beta), boring industrial firm that isn’t exactly known for checking the box on the excitement factor.
When volatility rockets higher and high-flyers in tech begin to come in, it’s these predictable names that might be worth backing up the truck on, even if the price of admission isn’t at a low point.
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A huge earnings beat and a generous 10% dividend hike in the books
It’s been quite a rewarding past month for shares of WCN, which are up close to 14% in the past month, thanks in part to a solid quarterly earnings report and a raised outlook. Indeed, volumes are up, revenues grew comfortably (by just north of 7%), and a very generous dividend hike (of 10%) to the quarterly dividend was announced. Indeed, for those seeking relative stability, it’s tough to overlook Waste Connections, especially given the likelihood that it can stay standing when and if an AI bubble does suddenly burst.
In any case, the post-earnings spike was rather unusual for Waste Connections, a firm that’s not exactly known for gapping up after a big reveal. Still, it felt like there was a lot of pessimism priced in as shares eventually put a bottom into a more than year-long bear market that caused shares to shed more than 25% from peak to trough.
Call it a case of low expectations and a huge upside reaction, if you will. Either way, the expectations are back up for the firm, and the real question is whether Waste Connections has what it takes to break out to new all-time highs on the back of an incredibly strong number.
Waste Connections stock is by no means cheap after the surge
In my view, shares of WCN look fairly priced, and while the 0.84% dividend yield might not seem like much, I do think the payout stands to grow at a rapid pace in the coming decade, regardless of what happens to the tech trends that Wall Street has been overly focused on.
And while I like the firm and how it’s been operating in this environment, I must say that I’m in no rush to be a buyer at 29.7 times forward price-to-earnings (P/E). That’s expensive, even for a firm with a lengthy track record of consistency. As volumes continue to bounce back while the firm stays open to opportunities on the M&A front, there’s certainly opportunity for another surprise. But, for the most part, I think I’m going to have to stay on the sidelines.
If shares come in further, I’ll be more willing to give the name a second look. But until then, investors may wish to stash the name on a watchlist. It was a sleeping giant that suddenly woke up, but there’s always a chance it goes back to sleep again. Personally, I think a dip back to the $230 range might be worth considering initiating a position.
