2 Stocks Cascade Investments Is Heavily Buying

Includes: KO, MO, PM, RSG, WIW
by: Brian Gorban

There are many factors I screen for prior to making a stock purchase. I'm a strong advocate of the time-tested strategy of value investing, meaning looking for a stock trading at a discount to its peers in terms of book value, earnings, sales, free cash flow, and/or other factors. However, one can never argue about insider buying being a strong indicator, since insiders have the best view about the company going forward. When it's coming from one of the most brilliant investment minds, in this case Bill Gates' private holding company, Cascade Investments, it really piques my interest.

1. Republic Services Group (NYSE:RSG) is in the waste management industry (not to be confused with the company Waste Management (NYSE:WM)) and is simply a juggernaut with over $8 billion in annual revenues. This is a company that turns other people's trash into cash to the tune of approximately $500 million in the past twelve months. This has allowed the great management team to consistently raise its dividend, which is now at a very respectable 3.1%. The company looks neither cheap nor expensive at 1.4x price/book, 1.3x price/sales, and just under 23x price/earnings. The firm bought another 3.75 million shares at an average price of $27.5 in late August, bringing its total holdings to over 61 million shares or approximately 16% of the total shares outstanding. As I said before, as a value investor, I see this as a little rich for me now, but if were to come back down to $25.5 meaning 20x price/earnings, I'd be a buyer.

2. Cascade has been buying heavily also into the Western Asset/Claymore Inflation-Linked Opportunities & Income Fund (NYSE:WIW) since July 12. Buying a total of 1.8 million shares over that span and bringing its total ownership to just over 8.5 million shares translates to approximately 14% of the total fund. It simply looks to be an inflation hedge through investments of corporate bonds, notes, asset-backed securities, and yankee bonds. It pays a monthly yield of just over 3%, which is considerable of this ultra-low rate environment. I think this is a safe long-term dividend holding, but I'd split my position with Vanguard's great and very low-expense inflation protected fund which also yields a better 3.4%. I also think great inflation protection can come from recession-proof, high-yielding stocks that I find appealing at these levels, including Altria (NYSE:MO), yielding 6.2% and trading at 16x price/earnings, Phillip Morris International (NYSE:PM) yielding just under 4% while trading at 15.5x price/earnings, and Coca-Cola (NYSE:KO) yielding 2.7% and trading at just 13x price/earnings.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MO, PM, KO, RSG over the next 72 hours.