The Canadian Investor - Best Trash Stock? Waste Management or Waste Connections

Episode Date: August 18, 2025

Dan and Simon dive deep into two of North America’s waste-disposal giants — Canada’s Waste Connections and the U.S.-based Waste Management. They break down business models, market share, acquisition strategies, financial performance, and the critical role of landfill ownership. From healthcare waste growth to automation’s impact, and from regulatory risks to why “boring” garbage companies can be long-term portfolio anchors, this episode unpacks the dirty details of a surprisingly resilient industry.Ticker of stocks and ETFs discussed: WCN.TO, WM Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent. We are doing another episode today where we're comparing two very similar companies. one located in Canada, so it'll be waste connection compared to waste management. So not the most exciting businesses, I would say, from a business perspective, although they do, I'm pretty sure they mention, at least waste management mentions they do use AI a little bit in their operations, which any company would at this point. But still some very, I would say, blue chip companies, companies that will chug along,

regardless of what happens in the market, probably underperform the markets when we're in euphoria levels as we are right now, but outperform when there's some big drawdown. So it's kind of that defensive style of company, each of them. Yeah, and they're kind of, they're defensive companies, but they've also grown a lot over the years. Like, I'm pretty sure both of them are market outperformers over the last while. I know waste connections is. They're, boring businesses but they are are very profitable lots of growth in this industry and also just massive moats just and i mean we'll get into that more but uh yeah there i mean trash collection is uh it's an outstanding business and i i don't see it being you know phased out anytime soon

i mean i know you mentioned a i would imagine you know automatic garbage collection things like that i mean i would imagine if that stuff came around that these two companies would probably be at the forefront of it anyway so Yeah, that's what I would think is they would probably benefit from that. So I'm going to talking about returns. So before we get started, let's just see how they perform compared to the market over the last four years or five years. Sorry, so looking at total returns here, I am using Waste Connection traded on the New York Stock Exchange because waste management is also trading the U.S. So it'll just be easier to compare them.

So just apples to Apple will be mostly speaking in the U.S. dollar when we are talking here, although Dan may special. sometimes if these switches back and forth between CAD and USD. If you're looking at last five years, so you have waste management that is up 124%, the SMP 500, up 103%, and you have Waste Connection that's up 92%. Now, a little caveat here is Waste Connection was actually outperforming the S&P 500 until, I would say, very recently, so any time before June during that time period. So a lot of this is probably, you know, I would say it's done quite well if you consider some of the exuberance that's been happening, especially in the tech sector in the market. A lot of speculative plays.

Clearly, big tech is not as speculative, but there's a lot of hype around big tech, which is pushing up the S&P 500. So keep that in mind. But the fact that it's almost the same kind of returns, Waste Connection, has done pretty well too. Yeah, and if you own the Canadian ticker, you're up a bit more. I think it's like 104% over that five-year time. If you own WCN.TO rather than just voice connections overall. So it's been a bit better on the Canadian ticker front. I would imagine that's a currency basis.

But yeah, they both perform very well. I would imagine, you know, the run up in the S&P 500, there's probably not a lot of desire to own these types of companies, but they're still very strong. Yeah, exactly. So let's give an overview because I'm sure. Pretty much anyone listening to this has heard of these companies before is very familiar with them. But just a quick snapshot of what, well, how waste management started is like history and so on.

So it was founded in 1968 in Chicago by Wayne Huzinga and Dean Bunchrock. Shortly after founding the company, they began purchasing. And this will be a reoccurring theme here that these companies are actually doing a lot of acquisitions. So shortly after her founding the company, they began purchasing smaller garbage collection companies across the U.S. They went public in 1971. By 1972, they made over 100 acquisitions.

In the 1990s, waste management faced some major accounting issues, which led to the departure of the CEO back then. Some of the former top executive settled with the ESCC in early 2000. I believe it was without admitting guilt, but they had some pretty large settlements. It's okay. That's usually how white-collar crime goes in the U.S. and Canada. Yeah, don't admit guilt, pay some of money, and you're good to go. In 1998, following the accounting scandal, Waste Management merged with U.S.

Waste Services, which made the company by far the largest U.S. Waste Services Company, I believe, waste management was already the biggest before the merger. just gives you an idea of the size of the newly created company back then and throughout the years waste management has continued making acquisition and they are still the largest waste management services company in the u.s. Yeah so waste connections is a much newer company was founded in the late 1990s by Ron Middlestat and the crazy thing is he's still the CEO so he was the CEO from 1997 to 2019 and then he left for a while but he came back in 2023 so I mean, you see this, it does occur, but it is pretty rare to see like an original founder

of a business like still at the top of the chain like 30 years later. So yeah, he's done quite well. He has a passion for garbage. Yeah, he loves. He loves collecting trash. But yeah, like after, so they were found in the late 90s and they pretty much immediately went public. I think it was like nine months or so after starting the company. And it was a U.S. listed ticker up until 2016 and then it made a huge splash so it acquired progressive waste here in Canada for 2.67 billion and I mean that kind of seems small now considering waste connections is nearly a 70 billion dollar company but back in the day it actually doubled the size of the company so it was definitely notable and although its Canadian subsidiary is kind of headquartered here in Canada its global

headquarters are in Texas but when it did do this merger with progressive back in 20 2016, it domiciled in Canada. So for a while, I actually thought that you would still pay withholding tax on the distributions from waste connections because I thought it was a U.S. domiciled company overall. I just thought they kind of bought Progressive to kind of get exposure to Canada, but it is Canadian domiciled. So good news for some of the people, I don't know if there's a lot of people looking at these stocks for income because their share prices have gone up so much over the last while that they don't really pay much. dividend but the company is the third largest waste management company in north america so waste management has around 28% market share a lot of some websites say they're upwards of 33% but i just kind of took the middle ground to 28% or sorry yeah 28% republic services has 20% and waste connections is around 7% so it's the third largest but it still has you know one quarter of the market share of waste management i mean this does kind of kind of show you how fragmented the industry is, which is, we'll kind of get into that later on in

terms of the acquisitions. But, you know, the three major players only control about half the market. And although this was on a much smaller scale than waste management in terms of scandals, I guess you could say, they were in it, they were in a bit of hot water not too long ago. I think it was six or seven years ago. They, they actually did like an undercover sting on plastic recycling. So they took these plastic bales and they put trackers in them. And And waste connections got caught actually dumping these plastic bales into landfills. So, I mean, that caused a bit of an issue, not as big as, you know, a pure accounting scandal. But there is a, there's a lot of eyes on these companies.

Obviously, like they're recycling things like plastic, hazardous waste, things like that. So regulatory issues and kind of things like this tend to come up once in a while. I can't remember their logic to this. They said, like, the people were just told to dump them in the wrong place. Yeah, that was kind of a non-issue now, but, yeah, it's, they're huge companies. Yeah, which is interesting because they make money, right? Like, they'll often, and I'll kind of explain a bit how it works with municipal contracts and stuff like that, but they'll usually get money, like they'll be able to resell the recycling material.

So they make money out of it. or at least reduce some of their costs associated with that, but there's usually revenue shares with the municipalities, for example. Yeah, well, and I would imagine, I mean, maybe they thought, I mean, maybe it was just a simple mistake, or maybe, I mean, the dumping in their own landfills is a lot bigger margins than it would be to actually take it to the proper facility.

Yeah. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQBank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait.

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use code TCI, and you get $50 to get you started. In today's volatile markets, making smart investing decisions matters more than ever. That's where the Globe and Mail comes in. From stock analysis and earnings report to tariffs and interest rates, the globe's business and investing news help you take action. With tools like CPP, RSP, TFSA, and mortgage calculators, the globe offers a full suite of resources to help you plan, invest, and stay on track, no matter where you are on your financial journey.

Ready to invest in you, visit globe and mail.com slash subscribe for unrestricted access at a special introductory rate. So in terms of what waste management does, so it operates across waste collection, recycling, landfill disposal, medical waste disposal, which is actually a key growth driver for them, and renewable energy via landfill gas-to-energy project. Enfield gas energy means that they capture gas is produced by landfills and then generate energy with it. Alternatively, they can use the gas to convert it to renewable natural gas, which can be used as natural gas or to fuel vehicles. They have operations in Canada, the U.S., and parts of Europe. And I'll just mention a little caveat here.

So I knew waste management, but I did some research. And I think you use AI quite a bit then as well. I use AI, mostly chat GPT, but I've tried other platforms too. And I was just kind of curious, so I asked it to just give me the countries of operation. And then I had the investors' relations side open with the most up-to-date presentation, the yearly presentation, so end of 2024. And I was kind of comparing the answer. And it kept saying just that it had operations Canada and the U.S.

So I looked at the sources, and the document it was referencing was published in 2000. So I just wanted to say that because I think I think AI is great as a research assistant, but just like you would have had a human research assistant, whenever you have a research assistant, AI or human, you have to validate the work. And that's just an example here. Yes, I think it's a very useful tool for researching, but you always have to validate the information. And unfortunately, I see a whole lot of people that just kind of use whatever. Chad GPT or whichever IAI platform spits out as gospel, lack of better words. So you have to really be careful there because there's still a lot of hallucinations. And if you want your work to be accurate, you have to make sure that, yes, it will save you time. Don't get me wrong. But you also have to make sure that you also do your part with it.

Yeah, you just got to verify, like a lot of it will provide you with links to the actual sources and I mean you just have to verify their their it's generally when it pulls from sources it's 100% accurate to those sources but whether or not they're still relevant is uh yeah exactly entirely different uh yeah like it wasn't able to read that it was produced in 2004 even though that document was clearly it was very clear the date that was so i just wanted to mention that also this episode we're not quite sure on the sequence of releasing so you'll see that i did a solo recording, whether it comes before after this, I'm not sure, but how I use AI investing and also how hedge fund use AI investing. So if you're interested with this little section we just talked about,

just make sure you tune in and I go into more deaf how I use it as a tool. Now to get back to waste management here, the infrastructure that they operate is just really massive. They have 506 solid and medical waste transfer facility, 497 hauling operation, 262 active solid waste. landfills, 105 recycling facilities, 69 autoclaves, and 18 medical waste incinerators. So their fleet for their legacy business as close to 19,000 collection vehicles. So it is quite the operation. Do you have some numbers here on Waste Connection when it compares to that, or do you want me to just go and explain how contracts will typically work with municipalities and corporate

customers? No, so I pulled them, but I didn't want to kind of waste the time, kind of. going over them because it's effectively, it's almost the exact same thing. Waste connections doesn't really have much on the medical side of things, but if you're looking at, you know, the transfer facilities, the, uh, the landfills, recycling facilities, it's effectively the same thing, but just at a smaller scale, obviously, because it's, okay, it's a little less than half the size of waste can waste management. So you can think in the same same situation, but just a little bit smaller scale. Okay. So just cut the numbers by half and yeah, pretty much. Yeah. It's pretty

close to that, yeah. So how the contrast typically works? So that I wasn't fully aware. So I did some research here. So contract will typically be between three and 10 years with municipalities. They will typically have CPI linked escalator for inflation. They'll be able to charge fuel surcharges. That's pretty common. There'll be some revenue share agreements for recycling with the municipality. There's other clauses that will come up. Those are kind of the major. ones. And then on the corporate side, it's usually shorter term, typically between 12 and 36 months. They'll have the ability to do price changes based on CPI, fuel, energy surcharges, disposal costs increases, regulatory changes. So this is typically how they'll be operating

because that's who their clients are. It will literally be municipalities or corporate customers. Obviously corporate customers, you can kind of incorporate like kind of other section of the government so obviously i'm including here like probably provincial governments federal governments that would have a need for for ways disposal at certain of their facilities but that's typically how the contracts will work yeah and it's this is kind of what makes their cash flow so consistent i mean you typically have long-term deals with towns in like rural areas things like that pricing escalators often priced in so during that high inflationary environment back in 2022 or 2023, if you look to a company like Waste Connections,

they report like their core pricing growth. They were effectively able to offset all of that. I think they were growing prices between 8% and 9% back in 2022. So these contracts are signed to pretty much guarantee that there's really no issues in terms of revenue and profits from the contracts. And yeah, that's pretty much the bread and butter of these businesses is residential and commercial garbage disposal, which is, I mean, on the commercial side of things, it'd probably be a bit slower, but the residential side, I mean, it's, it's just a staple

service that is really never going to go away, nor is the pricing going to go down regardless of the economic environment, because I got to pick up the trash, whatever it may be, once, twice a week, no matter what. And it's, yeah, it's a very consistent stream of revenue and earnings for the business. Yeah, yeah, exactly. Please. So now we're starting to look at the financials here. So I'm showing the company statistics on fiscal.a. for joint TCI viewers. So you'll be able to see that. And I'll go over the financials here for waste connection, waste management. And then you'll do the same for waste connection. So you can always kind of go back and forth. Just to rewind the episode a little bit if you want to compare the two. So market cap around 95 billion employees, around 62,000 employees. The trail. Well, trailing 12 months revenue was 24 billion. Revenue growth, and I'm using 2019 because I'm just trying to give them like a five-year window just to give people an idea. So revenue growth since 2019 has grown at 8% on a compounded annual growth rate. So Kagar, Kager operating margins between 16 and 18% will kind of fluctuate in between there. Trailing 12 months, net income was $2.7 billion. Net income growth since 2019. So that's grown at a clip of 9% per year.

Free cash flow in the trailing 12 months is $2.1 billion. And free cash flow growths in 2019, that one has grown at a growth rate of 1% per year. So not very high in terms of free cash flow growth, pretty stagnant there. Dividend yield, 1.4%. Five-year dividend growth rate is at 8%. So some definitely nice dividend growth here. free cash flow payout ratio which is the one I look at when I look at the dividend payout ratio so the range will typically be between 50 and 65% all that to say that it's very manageable now on this

share buyback that's where it gets a little bit interesting obviously I've been critical at times for share buybacks so just because it really depends if the company is doing a good job or not so for them I would say they've done a decent job and I'm just pulling up the information here there you go there you go so I think they've done an actually pretty decent job so looking at the share buybacks and you can see they've done share buybacks that quite a bit historically but looking at the last like five six years the share count has actually declined at a rate of one percent per year since 2019 and you can see that between 2021 and 2023 they bought back over $4 billion worth of share.

So really $21, $2, $2, $2, $2, $2, $2, $2, $2. That's a lot. But looking at the price to earnings and price to free cash flow during those periods of time, it looks like they bought the stock back at decent valuations. Like not necessarily rock bottom, but they still did like decent valuation because that is something I'll look in hindsight and say, look, were they buying back the stock when the markets were like trading the, the company at historically high valuation, and that's not the case there. So I think management has

done a decent job here at buying back shares. The five-year return on invested capital, which is very important, just so is how efficiently managers management actually invest capital and the returns it gets on the business, whether it is through capital generated by the company or debt, whatever it is. Total debt, so 9.6% for the ROIC. The total debt was $23 billion as of the latest quarter. Most of the debt is actually fixed. The interest expense has been increasing and has now more than doubles since 2022. It has gone from $378 million to just shy of $800 million in the trailing 12 months,

mostly as a result of obviously their debt level is not low in terms of absolute debt, but it's also refinancing existing debt. but the debt ratios that you would look at are actually not too bad. So the EBITA to interest expense peaked in 2022 at 14 times. So that was very good. That just means that they would have EBITAs earnings before interest, taxes, depreciation, and amortization. It's a good like profitability metric because some of the items that it excludes are non-cash items. So it's good to see here just how many times it had the insurance.

interest payments covered. So it peaked at 14 in 2022, but now is down to eight times. So that is something you will want to keep an eye on. You don't want that ratio to go too low because it means that more and more of the profits are actually going to the interest expense. So it is something to keep an eye. The total cash, $440 million on the balance sheet, so not much compared to the debt, but when you have stable businesses like that, not crazy. And then the valuation, you're looking at a Ford P of 29 and a Ford price of free cash flow of 27. Now always take the Ford P or trailing P. You have to put things into context.

So I know some people die by the sword on the trailing P and some other people will look at the Ford. I think you have to look at them depending on the type of businesses it is because some businesses will be extremely difficult to forecast and some other businesses will be much easier to forecast. So the ones that are easier to forecast, I think the Ford price to earnings and Ford price to free cash flow makes a whole lot more sense. The ones that are more difficult to forecast, I think using the trailing and then using your own judgment to try and get an idea for the future is where it comes in. So I wanted to mention that because I know there's a lot of debate about trailing in Ford for P and price of fee cash flow and other valuation metrics.

But like most things in investing, it's more of a nuanced take. And I think it's important for people to know that because I know you see it time and time again. Sometimes people just want to know like what's a cheap P? What's an expensive P? Well, it's not that easy. You have to like, it's not black and white. You have to use your brain and actually think about it a little bit. Well, yeah.

I mean, these businesses I would put more on the end of easier. easier to predict. I mean, it's kind of the same as, well, I don't want to say it's the same. Like a regulated utility would be, it's very, very predictable earnings-wise. So generally, I mean, forward price to earnings is not all that bad of an idea. And I would basket these in with companies that are relatively easy to predict, mostly because we went over those contracts. I mean, pricing escalators, long-term contracts, things like that are,

are probably going to make cash flows extremely predictable, which is typically why they run at tighter coverage ratios in terms of debt, mostly because they know the cash is coming in so they can kind of run a little bit tighter in that regard. Waste management, or sorry, waste connections. I actually did the numbers in Canadian dollars. I forgot to use the U.S. ticker, but I'll, uh, yeah, it's okay. Disclaimer, Canadian dollars here. So market cap of 66 billion.

So we're talking what? Probably like just over 45 billion U.S. dollars. So we're 48, so I'm sharing the U.S. version. So I'll have the U.S. numbers. Yeah. You're pretty much double. So waste management is pretty much double the size. Trailing 12 month revenues around 12.8 billion Canadian. It has grown revenue at a much faster pace. So we're looking at a 12.3% compound annual growth rate since 2019. And it does have, I mean, the operating margins are relatively almost identical between these two companies. I mean, I think waste connections is doing a little bit.

bit better right now. I think in their recent quarter, they were just under 19%. Trailing 12-month net income is around $900 million, and they've grown that around 4% annually, compound annual growth rate since 2019, $1.6 billion in free cash flow. So we're probably talking about $1.2 billion US. So, I mean, waste connections and waste management, it's almost the exact same free cash flow generation when you think of the fact that waste management is double the size. But the only difference here is waste connections has grown that at a 6% compound annual growth rate since 2019. I think waste management was around 1%, as you had mentioned. Dividend yield is, I mean, it's effectively a non-factor if you're looking for income.

They only yield around 0.68% right now. And they do grow the dividend pretty consistently at a double-digit pace. It's five-year growth rate of around 12.6% annually. And they only pay out around 20% of free cash flow towards the dividends. So this is really not a company that's focused on, I guess you should say, I don't want to say not being shareholder friendly, but you're really not going to, you're not going to buy this company for if you want a company that's buying back a ton of shares or paying out a ton of income because buybacks are pretty much a non factor. It's only reduced shares outstanding by around 2%. That's total, not annually, 2% total over the last half decade. I mean, for the most part, I would imagine this is due to the fact that it sees more opportunity in acquiring smaller tuck-in acquisitions rather than buying back its own business. It makes perfect sense.

I mean, why buy your own shares back at, you know, 30 times free cash flow when you can acquire a, you know, a smaller disposal company that probably trades at a fraction of that price with the industry as fragmented as it is. I don't see a lot of value in W or in, sorry, waste connections buying back its own shares. Unless they get very cheap, it's just going to find more opportunity elsewhere in smaller markets. It'll buy those companies. Yeah, because they're smaller, they have more opportunity, right? Exactly. Don't need as big of an acquisition to actually make the needle move as a waste management. And one thing I wanted to add, so Waste Connection actually has better free cash flow margins.

So they're around both of them that's been declining in recent years, but they're still looking at pretty decent margins here. So waste connection, the last few years, it's been around 13, 15%, give or tag, depending on the year. But like I said, a bit more on the declining phase here. And then you have waste management that is a bit more in the around 10, 9, 10 in terms of free cash flow margins. So in terms of free cash flow, waste connection is doing better on that front. Yeah, and I think, and I guess we'll talk about this a bit, I think that is the acquisition strategy that's kind of working more in a company like waste. connections favor, which is actually, like, I do actually believe that is the true differentiator of both of these businesses. Like, they're virtually identical outside of kind

of the markets they target and the acquisitions they make for the most part. Like business operations are the same. It's just kind of how they target growth that's different. Return on invested capital is only 4%. But I think that's largely an accounting effect from kind of the balance sheet. They make so many small tuck-in acquisitions. They have a lot of goodwill and intangible assets on the balance sheet. So you have to think this company has made over 120 acquisitions since 2020. Those kind of the goodwill and the intangibles kind of inflate invested capital, but they don't really add a ton of cash flow at all. If you kind of strip those out, they're very similar to waste management, which is kind of slower on the acquisition front in

terms of volume they tend to make like bigger splashes which we'll talk about later but debt is around 11.4 billion they have a debt equity of around one and interest coverage ratios in the 4x range again these are low but they're not like so low for a company that's cash flows are are very very consistent from those contracts it has so I'm not really overly concerned about that at all and around same as waste management around 85% of the company's debt is fixed interest expenses have doubled over the last five years, but this really isn't a result of accelerated rates or anything. I mean, the company has just doubled overall debt levels. Over that time frame, EBITA has gone up by about 60%.

So it's in a little bit worse position, but not overly concerning. And in terms of cash, it has around $150 million on the balance sheet. So not a lot of cash on the balance sheet for a $70 billion company, but again, I really don't think it needs all that much. And we would look to valuation. So the company trades, it's more expensive. then waste management actually I think by quite a bit trades at 42x trailing free cash flows and around 74x trailing earnings but these are non-adjusted earnings so the company had a bit of restructuring costs and acquisition related cost last year that kind of impacted its earnings if we look to a

forward basis it's 32x and typically this company trades anywhere from 40 to 50x trailing earnings price to earnings to growth ratio which will effectively take its current price to earnings and kind of compare them to its expected growth. That comes in at 0.6. This is kind of like a... Yeah, it's funny. Fiscal has it at 11.6. I'm not sure where the discrepancy.

Yeah, the P.E.G. Yeah, if we go... Yes, I don't know where the... So I'm using Y charts, and they have the P.E.G at... Pretty big discrepancy. It is. 0.61. I don't know how it could be 11, though.

I mean, because if you think about it... Yeah, but even 0.6 would be... I mean, it shows kind of slightly undervalued relative to the growth. I mean, yeah, but wouldn't 0.6 imply that they're going to be growing the earnings at more than 35, 36x, right? Well, what is the PG formula? Yeah, it's the price to earnings. It's just the earnings road in terms of percentage, yeah. Yeah, I mean, that might be a Y charts area there because, yeah, you have.

Yeah, I think it would, yeah, because that wouldn't, like, they basically, their, their percentage of growth in earnings would have to be higher than the P.E. Yeah, and they have to be growing at 35% or something. Let's see. Which I don't think is probably the case. No, we got, let me see here. I mean, for the purpose of the podcast, we can just say, forget about the P.E. Yeah, forget about the P.E. The P.E. The P.R.R.R. Clearly, there's some conflicting data. That's okay. So let's just continue here.

Anything else you wanted to add before I go into the potential growth for waste management? No, let's go into the growth. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQBank account.

Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQBanks notice savings accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning even while you wait. Want to buy a stock but don't want to shell out hundreds or even thousands for a single share? With QuestTrade's new fractional shares, you can invest any dollar amount and build a diversified portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading at $100?

No problem. Questrade has you covered. They're the first broker in Canada to offer real-time commission-free trading for U.S. fractional shares in ETFs. It's simple, powerful, and finally available in Canada. Head to Questrade.com to open and fund an account. Use code TCI and you get $50 to get you started. In today's volatile markets, making smart investing decisions matters more than ever. That's where the Globe and Mail comes in.

From stock analysis and earnings report to tariffs and interest rates, the globe's business and investing news help you take action. With tools like CPP, RSP, TFSA, and mortgage calculators, the Globe offers a full suite of resources to help you plan, invest, and stay on track, no matter where you are on your financial journey. Ready to invest in you, visit globeandmail.com slash subscribe for unrestricted access at a special introductory rate. Okay, in terms of growth, it's pretty simple,

so they'll look at doing some organic growth, so grow within their operation. The merger and acquisition market is where they'll look at as long as it makes sense in key growth markets. They increase focus on growing healthcare waste solution, especially since this has big tailwinds in terms of aging demographics in the markets they operate. And it's probably where,

you're picking between both. I think this is like literally like are you looking at more of an acquisition play in the traditional kind of solid waste collection or do you want to bet a bit more on the bigger player that is also putting increased focus on healthcare waste solutions. I think it's almost the biggest differentiator in terms of like growth, right? Just looking at growth specifically. Yeah, because they just, what was that company called? They just made, oh yeah, stare a cycle, I think. They bought, they bought it. It would have been probably at the end of last year.

And they paid a lot of money for it. I think they paid something like $7 billion for it. So, I mean, again, that's kind of the angle there. Yeah, you're looking at waste connection, or sorry, waste management tends to make those larger, bigger splashes, whereas waste connections is very different on the front that it kind of targets those smaller like rural area garbage collection services it buys them up kind of improves the operations it kind of merges them into the fold makes a ton of acquisitions so i mean i guess it

it just depends if you like those companies that make big splashes like this i mean yeah waste management spent more on stericycle than waste connections has spent on smaller acquisitions over the last five years right so it's a it's a huge one-time acquisition in that area of the market or those smaller tuckins. Yeah, well, 7.2 billion, I don't know. I know you mentioned. Yeah, so 7.2 billion in November of last year. So they're just really, yeah, that they're just really starting to integrate it in their business now.

So the completion was in November of last year. Yeah, and the one angle that I kind of like waste connections from is there's a lot more that could go wrong with rolling out $7.2 billion on an acquisition. it can like if you think about it i believe waste connections since 2020 i said they had made 120 acquisitions i think they had spent around 6.5 billion dollars over that time frame so you're talking like an average of you know 60 million dollars they're paying for you know a lot of their acquisitions which i mean if one of these goes wrong it's not really a material thing i mean i bet you a lot of people wouldn't even notice whereas if waste management kind of dishes out $7.2 billion for this gigantic acquisition, and there's integration difficulties, which is

issues overall added costs. They tend to run up, which is why I tend to prefer waste connections in this area of the market. But it's definitely just what you prefer, really. Yeah, exactly. Because where it gives them an edge a little bit against waste connection, for example, is with these kind of customers, right? Like a hospital will have more than, than, like, help. care of waste, right? We'll have regular waste. We'll have like, they're going to need, you know, garbage pickup, recycling pickup, and all the other stuff as well. So it makes a whole lot of sense probably for a lot of these healthcare providers to just go with the waste management. Because if not, they'd have to have multiple contractors most likely for the waste collection where they can just

have an integrated solution. So I think that is somewhere that is definitely a big plus for them. But again, it's kind of trade-off, right, depending on what you're looking for. And, of course, the other part of growth would be leveraging automation, not only for growth, but for efficiency. Yeah. Well, and the one thing I guess I'll say is waste connections does have medical waste, but it's not like a huge portion of the business. This acquisition kind of puts waste management much farther ahead in that regard. But yeah, the automation thing is effectively a growth element for both of them. I mean, if you think of the evolution of garbage trucks, I'm sure we're not too far off even further automation.

I mean, I know I remember back in the days when the trash guys kind of rode on the side of the vehicle and hopped out and chucked the bags in. Now they don't even get out of the vehicle. They just pull up and the little arm comes, chucks it in the thing. For us, they still do. It depends. It's not fully rolled out. Oh, really? For the most part, yeah, they still come out.

If you go on the Quebec side in Gatineau, I've seen a bunch of those like automated trucks. So yeah, I think it's still being rolled down would be my game. Interesting. I haven't seen them. I have not seen a garbage guy get out of a truck here in quite a few years. But yeah, like I mean, it's good because little anecdote. So for people who weren't aware. So probably like now it's like dating back 10 years ago.

So I used to be a, I used to be in talented. acquisition or staffing for for the city of ottawa and the city of ottawa at some point ended up winning its own waste collection contract so people might be like what what the hell how so instead of outsourcing it to like a waste connection and waste management they ended up doing it in-house so they had a bid from in-house to basically do the garbage collection with the city-owned trucks and they won it at a lower cost than waste connection or waste management. I can't remember, but I believe the city owns the landfill, so it's probably the reason why they were.

Yeah. Yeah, so I'm pretty sure that's why they were able to do that. Don't quote me on that, but I'm pretty sure. And one of the big things when hiring collection operators, that's the ones who would pick up recycling and garbage, was the actual medical test. Oh, yeah. Because one of the big issues that they had, was back and shoulder issues.

So literally part of the process, the high-end process, you had a back-and-shoulder test. Because the last thing the employer once back then was for guys to like suck it up for the interview. They already have a chronic long-term shoulder back issue. They suck it up for the interview. They get the job. And then they pass their probation.

And then they go on long-term disability. Yeah. Because that would, with any sort of back or shoulder issues, that would be a job that would finish you off pretty quickly. Yeah, exactly. So, no, I just wanted to say that as an anecdote and just to show that automation will definitely be a big plus for these companies because that is an obvious cause that you'll be reducing is medical costs related to the job. Not that it will go to zero because I'm sure these machines will break down from time to time and they'll probably have to like hop out and still do it manually. but I probably will reduce the cost for a lot of these companies.

Well, and you even think on the labor side of things, I mean, if you run a traditional truck like that, you need three guys on the truck. You probably need one driving and two outside collecting trash. Whereas, like, here, I believe it's waste management that's in the town I'm in, but they just got one guy in the truck

and it's just an arm that picks up the garbage and chucks it in. Really? I thought they'd still have two in case it breaks down, but I guess. They might. They might have two guys in there, but I only remember it.

He just came today. I don't remember seeing him one. Yeah. I mean, it's a pretty small town, so I guess I can just make a call, I guess. But as I had mentioned, like, I think where these companies differ is acquisition strategy. So as we had mentioned, like, waste connections, a ton of, like, I think it rolls out $500 million a year in, like, smaller tuck-in acquisitions.

Whereas waste management, like, they do make those smaller tuck-ins, but it's not at the scale that waste management does, especially relative to its, size. They might spend the same amount of dollar value, but again, waste management is kind of double the size of company. So I guess you could probably say it's the same playbook, but just kind of on a much different scale, on a much different scale. The one thing that's really interesting, and I think is a really underrated element of, you know, a lot of people don't pay attention to this is the landfill element of these companies. I mean, like the landfills are the moat, in my opinion, for the most part. They allow the companies to control margins in a big way. And they're just, I mean,

they're very hard to get approved. You're talking years of permits, regulatory issues. I mean, nobody wants, nobody wants to build a new, like if I just think of it in regards to say Calgary, nobody's going to want a new landfill built anywhere close. I mean, the NIMBY, not in my backyard. Yeah, exactly. So, I mean, the ones that exist are such valuable assets. it's crazy so the strategically located ones will be obviously shorter hall length which leads to less labor less fuel less wear and terror on the vehicles and in addition to this you effectively control the market when you own the landfills like when you had mentioned that the city of ottawa had had won the contract i would like without owning the landfill because

if you don't own the landfill these companies will charge the crap out of you to dump waste Like, they, I believe they charge a gate fee, which is to get through the gate, regardless of how much goods you have, and then they'll charge you a tonnage fee. So if a garbage company goes to, say, a waste collections own landfill, there's going to be a price to get in the door and then a price per ton to dump. So even if volumes start to decline, they make money from gate revenue on these external companies, whereas if waste management, or sorry, waste connections owns the landfill, it really, only cost them the internal cost of dumping like the cost of actually dumping it so i mean like just quick numbers say it costs you 60 bucks to go in and and use a landfill if waste connections is going to an external landfill it's going to use that 60 it's going to have to pay that 60 $60 a ton or whatever it may be whereas if they own the landfill it might only cost them

$20 to actually you know the internal cost of dumping that so i mean that $40 gap there is just pure profit from them owning the landfills. So landfills are a big deal in this business just because, yeah, nobody wants them, but the ones that exist, especially the ones in good locations like, say, city of Calgary, it's, it's big money for these businesses. And, um, and I checked and the city of Ottawa does own it. Yeah. So it's the second large, um, municipality owned landfill in Ontario, the one in Ottawa. Yeah. So that makes a lot of sense. Like you can win contracts when, you do that because ultimately like if you own the landfill you can price out a lot of people who don't own the landfill yeah i mean if you're fighting for a contract and there's two companies waste

connections and another one and waste connections owns the landfill that company that doesn't own it is going to have to price that gate fee and the dumping tonnage into the contract and waste connections is probably just going to be able to undercut them which yeah they're it's it's a definitely a key component of the business but the other thing that kind of impresses me a lot with Waste Connections and probably waste management to a certain degree, but when I looked at Fiscal, I don't think waste management reports pricing growth. Or if they do, fiscal, just it's not listed as a KPI, but pretty much any pricing environment, they've been able to more than offset declines and volumes because of this current economic dip

and higher inflationary costs of running the business. So if you look to a chart of Waste Connections core pricing growth, it's pretty impressive. I don't know if you can pull that KPI chart up there, but they have. They have their core pricing growth. And you can kind of see... From fiscal or... Yeah, it'll be on fiscal. Yeah.

Yeah, they just... They're able to... Well, I mean, you can see it during the inflationary environment. I mean, they... Costs went through the roof, but all they did was raise costs because they have those escalators in the contracts. So they were able to pretty much offset inflationary impacts and just overall costs of running the business by just raising prices.

And they're still doing this today. I think core pricing growth is probably, yeah, 6.6%. So I mean... That's total and then core pricing if you want that one. Yeah, 7.1%. So I mean, you look, yeah, you can see here 2020, 22, 23 when inflation was what? It got upwards of like 7, 8%. They just offset that.

Yeah, I think we peaked at 9, if I remember correctly. Yeah. So when you have a company that can, you know, a lot of companies during then were kind of getting hit hard by inflation, margins were, going down, but I mean, waste connections, waste management probably too, as I mentioned, just raise prices. And, you know, even today, volumes are declining. I believe waste connections, volumes fell by nearly 3% over the last year, but they just

kind of offset this with pricing increases. I mean, core pricing, 7.1% growth. So ultimately, when volumes pick back up again, I mean, obviously this, the prices are not going to go down, which kind of continues to, you know, be an added tail when when volumes eventually pick back up yeah exactly and in terms of anything else you wanted to add there i wanted to talk about some of the risks involved for each of these businesses so it's and that's what you're seeing right like there's a lot of similarities um with these businesses it's a bit like it's almost like comparing cp and cnr like there's a lot of similarities and then you're just kind of picking

it's almost actually quite identical but very very similar where you're kind of picking what kind of growth you want. It's pretty much that. Yeah, I think the main thing is, I believe waste management is kind of more metro-based, whereas waste connections is a little bit more like smaller rural area-based, a lot more acquisition heavy on the smaller scale. Yeah. And it's probably a kind of business, honestly, and we'll finish with the risks here.

Like, it's probably a kind of businesses that you could do just a basket approach. And you just own both. equal weighted, then you just set and forget it. Like that is, that would be, in my view, a totally reasonable approach. Yeah, there's not a ton of overlap. Like, they know exactly. They both have their piece of the market. If you're looking to get a bit more growth out of acquisitions and more acquisitions and

a smaller player than obviously waste connection, but if you're looking to get the bigger player, larger market share, the integrated solution with healthcare disposal, then waste management might be a better play but again equal weighted probably can't do all that wrong like it's probably going to perform similarly if I had to guess but in terms of risk there's definitely regulatory risk it may actually be it's kind of a risk but a mouth at the same time but for a company like waste management waste connection there's always going to be a regulatory and environmental risk just by the nature of their operations and also governments in place some governments may be more favorable to recycling or gas capture may offer incentives, other

may not. So these are all things that you have to keep in mind. Valuation risk, multiple compressions. So the current valuation of both of the companies are definitely not cheap. They're being priced as kind of, I would say pretty premium blue chip companies that are not necessarily, for the type of growth you're getting, the price. is not cheap, but then again, you know, you're also getting a whole lot of defensiveness and safety in terms of what you're comparing at in the market. So it is something to keep in mind. Commodity prices, especially if they generate revenue with selling recycled metals and gas fluctuation and those prices will affect revenues. Landfail capacity permitting NIMBY, so not in my

backyard. So obviously, it's harder and longer to expand sites. So it can definitely create some issue, especially if some landfills become full and they have to close them, which will happen eventually over time. And then the last one is we did talk about these contracts having some indexation embedded in them. However, it doesn't mean that there's a CPI escalator, for example, that will necessarily cover the caught, like, reflect the actual increase in cause that they're getting. I think that's really important because, you know, whenever we looked at, CPI data. This is just official government data. It doesn't mean that you, Dan, you're feeling more of a price increase than I am because we just have different baskets. And, you know, in the last year,

maybe you're seeing a 5% increase and I'm seeing a 1.5%. But the official data is 2.5. Like, I'm just throwing numbers there just to give people a sense. But it just means that, yes, they have these escalators, but it doesn't mean that the escalators are fast enough to cover their increased cost. I guess they traditionally they have been, but it is something to keep in mind as a risk here. Yeah, it's never a guarantee. But yeah, I think on the most of the business will be not cyclical. Like it's just going to be steady. But the one thing with the commodity, like they do a lot of oil and gas will just kind of energy related disposal, things like that.

I mean, obviously that's, I believe. We've Waste Connections said that side of the business in the U.S. Actually posted like a 15% decline in revenue year over year. So obviously that side of the business has, you know, added risks. But I would say the main thing here would be valuation like you had mentioned. Like the companies are expensive. They're much more expensive than they historically have been. Like Waste Connections is trading at, or sorry, waste management.

I don't know why I keep mixing up the names. I guess it's pretty easy. But waste management is trading at like probably. a 20% premium to what it typically has over the last 10 years. And I think waste connections is pretty similar in that regard too. So they're expensive and they've drawn down quite a bit too. I believe waste connections is down like 10% off its all-time highs and they're still a bit pricey. I've kind of been looking to add waste connections to my portfolio and I've kind of been waiting for a better entry point. And they do continue to slide here. But I think the valuations,

like especially if you look to what they've historically traded at over the last 10 years are probably going to be what you pay for businesses like this. I mean, if they've traded at that for 10 or 15 years, that's probably the price you're going to pay. And a lot of people avoid them because they're very expensive and they are. Like you said, when you see a company growing at like a six or seven percent pace, you don't really want to pay 35x free cash flows. I mean, but it is the defensive nature of the business, the assets, like the landfills, things like that. I know Waste Connections actually makes it a priority when it acquires companies that

they try to acquire companies that include landfills because they know of, yeah, like you had mentioned, the NIMBY thing that just like the fact that people, landfills are a complete eyesore overall. So they try to acquire existing ones versus, you know, trying to get new ones built. I don't really know of any risks that would like materially impact the business. business moving forward like I think it's going to be relatively consistent it's more so the price you're paying yeah yeah I think that's a fair point and to me these are kind of businesses that honestly I would definitely consider like I'm a I love these kind of staple hard asset businesses

because especially in the world of AI where a lot of businesses can get disrupted in the tech space and it's sometimes hard to identify which may be the winner which may be the the ones that get disrupted you have businesses like this that should be quite resilient and my approach would be pretty simple was just have a he kind of valuation in mind so maybe a range of valuation where it gets a bit more towards its last 10 years average get towards there and then as you get within close of that range or within that range then you just start adding to the position I think that's probably the right way to do it because you want to be careful adding when the valuations are too high And I guess the last thing I'll mention is, look, unless you've been living under the rocket,

it's hard to not think that the markets are just very overvalued in general. And that overvaluation is located, especially in certain pockets where there's a lot of speculation, the high beta names, which is just jargon to, or just financial talk to say that these are like the volatile names that will move a whole lot. There's a lot of speculation in those names, a lot of stuff in crypto as well. you're seeing right now and that may create some opportunities for boring defensive businesses like that because psychology will do that right we talked about some of the parallels between poker and investing and what tends to happen in investing is people start phomowing so they they're like they don't want to miss out on you know these big high-flying names that are just crushing it that

that have had triple within the last six months or a year and that their next door neighbor is saying, hey, I like, I tripled my money with this growth name. As you see more and more in that and the further into the speculation that you get, you may start seeing names like this start declining because you have some of the elders, not every single shareholder, that are selling these assets to get on the bandwagon of the high growth. So I would stay on the lookout if If you're interested in these names, I don't think it's out of the realm of possibility that they get a bit of pullback as a result of the market being too euphoric on those high-growth, low-earning names that we're seeing right now, which is very reminiscent of 2021. Like, I'm having some pretty big flashbacks of 2021 right now. Yeah.

Yeah, it's like they're pulling back now. And I would imagine, yeah, people, I mean, especially people who are necessarily, I don't want to say impatient. I mean, people effectively chasing returns in a regard, they're going to flow out of these, you know, slower growing defensive companies than into the high growth names. But, I mean, the one crazy thing here is, like, if you look to a company like waste connections, they have a beta 0.43s, which pretty much says they're about half as volatile as less than half as volatile as the market overall. And they've returned 102% over the last five years.

So you've got a low beta stock that's a double over a five-year time period. they've just been very consistent businesses, very big moats, strong cash flow growth, consistent. And as you had mentioned, like, I cannot see an instance where this business would be disrupted whatsoever. I mean, you can think of a lot of blue chips that, you know, potentially could be disrupted by AI. I mean, maybe even something as simple as like the telecom space in Canada, obviously, has a lot of blue chip stocks. They haven't performed very well, but you would classify them as blue chips, I guess. you can kind of see how that industry is going through a ton of troubles, whereas this one just kind of keeps turning out profits.

Yeah, and you're looking here. So this year, the waste management is of 14.6%. So let's finish on this. I know we talked about the returns a little bit earlier, but just this year because we talked about the five years. So waste management is up 14.6% waste connection, up 9.4%. But then if you're starting to look at the last six months, they're basically flat. So a lot of the gains were early this year, and then it's basically flat.

And if you're looking at drawdowns, then you're looking at kind of from the peak here in the last six months drawdowns around like five and six percent. So, you know, it's probably still a bit too expensive for my liking for these companies. But I think what we're saying is probably not far off in terms of there might be some money rotating out of these defensive stocks just because they're not, like, they're not performing as well as these kind of speculative bets that people are making right now. So keep an eye out if you like these kind of businesses. I know I will because I'm a big fan of these. Like I'm a big fan of owning blue chips in my portfolio to kind of counterbalance the higher volatility stuff that I have, like, coin exposure for example yeah nobody wants to hear about trash collection right now they want to hear about AI but these businesses they're very profitable yeah yeah exactly so i guess that's a good

good point to uh to finish this up i think it was a fun one despite it being trash and people may think it was hopefully people didn't think it was boring i think we had fun talking about it and at the end of the day you know you invest because you want to make money and keep your purchasing power and we try to invest not that we won't take these shorter term bets with small portions of our portfolio here and there but for the most part we do it long term and i think these businesses should do well long term they should like perform close to the market even potentially a bit better than the market and they'll they'll probably help you sleep at night when there's some big drawdowns because you know that covid or whatever

black swan event trash collection will likely contain continue. Yeah. That's what I did like no matter if you've just got promoted or just got laid off. I mean, you're putting your trash out on trash day. So that's it. That's a good way to end it. So thanks everyone for listening. We appreciate the support. Like we've said before, join TCI. If you're interested in subscribing, you get the full episodes on audio without any ads. You get the videos with the screen sharing. We talked about our monthly updates and also my parents portfolio update every month. If you would like, if you have such a chance, I would also appreciate if you gave us a review on Apple podcast or Spotify. It helps people find us. And yeah, again, we really appreciate you listening. And we'll be back again for another episode in the coming days. I don't know when it's going to be released exactly. So we'll have another episode. If this is a Thursday, there's going to be another episode on Monday or vice versa. So enjoy. And I do hope that you enjoyed the time, this nice summer weather while it's still there. The Canadian Investor podcast should not be construed as investment or financial advice. The host and guest featured may own securities or assets discussed on this podcast.

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