Waste Management (NYSE:WM) has become the center of the biofuel industry for three reasons:
The focus is moving away from fuels and toward intermediates used in chemical production. Intermediates have a lot more value than the equivalent of alcohol or cooking oil.
Waste Management has been making investments in the space and when it fails to step up, companies die. If you have the power of life or death over an industry, that's power.
Waste is now seen as a key feedstock by biofuel makers. The municipalities that have that feedstock, meanwhile, see it as a cost.
The trends have yet to show up on Waste Management's bottom line, but that 4.14% yield off of a $1.40/year dividend sure feels nice. Since January, shares are up just under 5%, with the business table at a $3.4 billion/quarter run rate, a profit margin of about 5%, and a debt-to-assets ratio of less than 50%.
Waste Management can give both money and feedstock to new companies like Renmatix, which is turning waste into sugars for fuel, or Enerkem, which is treating garbage as though it's a petroleum feedstock.
All this actually solves a big problem for the company over the long run. Tipping fees -- the cost of dumping a load of garbage at a landfill -- presently average just under $50/ton. If you're using it as an industrial raw material, and you're at the dump, your raw materials actually have a negative cost. It will be years before the industrial use of garbage causes municipalities to see it as an asset, rather than a cost.
Meanwhile, Waste Management stock remains a cheap place to play the change game. Want to give it a whirl?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.