Tiger Woods, The PGA Tour, And... Trash?
The Dynamic Wealth Report
February 26, 2010
by Corey Williams, Editor
The PGA tour’s taken over the neighborhood. Yep, it’s that time
of year when the PGA tour makes its annual tour stop in Scottsdale.
To be honest, I love golf and over the years I’ve had some great times
at the Phoenix Open. If you’re a golf fan, you need to experience the
famous 16th hole. There’s nothing like it in golf.
The atmosphere is more football game than a golf tournament.
It’s where fans were showering Tiger Woods with beer after a
hole-in-one. It’s also where an orange was rolled across the green as
Tiger was preparing to putt. Not exactly your typical golf decorum. But
then again, Tiger hasn’t exactly lived up to the PGA’s standard of
decorum either…
The 16th hole is what makes the Phoenix Open unique. The number of
people surrounding the hole is flat out impressive. And the size of
crowd throughout the entire event is massive.
You see, around a half million people pour into the TPC Scottsdale over
six days. It’s a logistical nightmare inside and out of the course.
Roads are closed and barricades are erected as the police try to control
the mass of humanity rolling through the neighborhood. And as a state
patrol officer not so nicely informed me… the speed limit on a number of
streets has been temporarily cut from 40 mph to 25 mph. (I can’t wait to
spend a day in traffic school paying this debt to society.)
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This year we have a new tournament sponsor. (If this isn’t a sign of the
tough economic times I don’t know what is.)
The old sponsor FBR Capital Markets (FBCM), an investment bank, is out. And the ultra sexy
Waste Management (WM) is in.
That’s right, the best sponsor the Phoenix Open could find is a trash
collector. I guess things really are down in the dumps…
Ok, I’ve had my fun.
Let’s take a look at who Waste Management is and what they do. Hey, if
they’re in good enough financial shape to sponsor a PGA tour event, maybe
they’re worth a look for your portfolio.
WM operates waste collection, transfer, recycling, disposal, and
waste-to-energy services across North America. Basically, they haul
trash. Their $16 billion market cap makes them the big dog in the waste
management industry.
Their business model keeps them from being tagged as either a growth or
value stock. The company’s shown some nice growth, but it’s looked at
more as a value play. This kept WM from falling as far as more cyclical
stocks in 2008. It’s also kept the stock from making huge gains as the
markets recovered in ’09.
However, management’s committed to growing revenue and earnings. This
gives the stock good growth potential as the economy recovers.
WM wasn’t immune to the recession. In 2009, WM revenues fell $1.6 billion
from 2008 levels to $11.79 billion. And earnings per share fell from
$2.22 to $2 over the same time frame.
Now management is looking forward to business conditions improving in
2010. They expect to earn between $2.09 and $2.13 per share. Clearly
things are looking up.
WM’s real beauty is in the amount of free cash flow the company
generates. They’re projecting free cash flow of more than $1.2 billion
in 2010. This gives management the opportunity to find ways to increase
shareholder value.
Management’s favorite ways to increase shareholder value is by paying
dividends and buying back stock.
In fact, they recently announced an increase to their dividend… up to
$1.26 in 2010. At the current price of $33.03, WM’s dividend yield is a
strong 3.8%. And the company plans to spend another $685 million on
stock repurchases in 2010.
Overall, WM’s management’s done a great job of turning a decidedly unsexy
business into something you might want to jump into bed with… or at
least consider adding to your portfolio. They’ve shown they’re committed
to driving home shareholder value with dividends and stock repurchases.
WM should deliver solid growth as the economy recovers. That usually
leads to an increasing stock price. But if the economy takes another dip
or recovers more slowly than expected, WM’s nice dividend and stable
business will keep it from getting wacked along with more cyclical
stocks.
• Big Lots (BIG) was upgraded by JP Morgan this
week. They now have an overweight rating on the stock. The analyst said
the retailer of close out goods can build upon sales momentum.
• Trina Solar (TSL) was downgraded to neutral by Credit
Suisse. The company beat analysts’ earnings estimates and gave upbeat
guidance for 2010. But analysts are worried by flat sales volume
projections in the second half of the year.
• RBC Capital Markets started coverage on Intel (INTC)
this week with an outperform rating. The semiconductor giant is riding a
wave of momentum as a new cycle in tech spending powers PC sales higher.
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