One man’s trash is another man’s treasure

I know I’ve mentioned a few of my favorite childhood TV shows in the last several months, including Green Acres. But Sanford and Son was pretty good, too.

I can’t remember the last time I watched it, admittedly. But I can still picture Fred Sanford at that cluttered Los Angeles junkyard, surrounded by everyone else’s castoffs.

Old washing machines, tires, scratched-up desks: Fred Sanford thought he could make money off all of it. And while there were a lot of laughs to be had at his subsequent mishaps, he did have one thing right…

One man’s trash really can be another man’s treasure.

Today, many highly creative and even successful businesses run on that principle. There are secondhand shops, of course, but also:

Still others process or auction off damaged vehicles or remove hazardous materials for companies that don’t have the permits, infrastructure, expertise, and/or willingness to deal with them. There’s actually a lot you can do with junk if you’re willing and capable.

Many of these operations aren’t exactly glamorous, it’s true. But do they need to be when they’re serving a useful purpose and making real money as a result?

I’ve learned a few things in my three-plus decades of investing in various businesses in various forms. And one of them is that some of the widest economic moats are built around assets that other people don’t want to deal with.

So let’s take a page out of Sanford’s playbook today and go dumpster diving. Only, in our case, we’re searching for durable competitive advantages hiding where other companies quite simply don’t want to tread.

Here’s one definite plus to investing in “garbage”: There’s always plenty of it to go around.

The economy can be booming or slowing down. Either way, households, businesses, manufacturers, and construction sites all still generate trash.

Which means that somebody still has to haul it all away.

According to an EPA study several years ago, Americans generated about 4.9 pounds of municipal solid waste per person per day in 2018. That amounts to 292 million tons all told, with roughly half of it ending up in landfills.

So it’s easy to conclude that we have an enormous need for landfills.

Yet the EPA also noted that the number of active municipal solid-waste ones fell from 6,326 in 1990 to as few as 1,540 by 2013. And I don’t think it’s gotten better from there.

That makes the ones that do exist even more valuable. In which case, you might want to start by considering your local waste company.

Most people don’t think much about them other than when they take the trash out to the curbside or nearest dumpster. But the largest ones don’t just own the trucks; they also own the collection routes, transfer stations, recycling facilities… and landfills.

As such, they can make money several times over from the same bag of trash, first by collecting it. Then by transporting it. And finally by disposing of it.

That's vertical integration at its finest.

Moreover, if those landfills service other companies, they get paid for those loads as well. This charge is known as a “tipping fee.”

But here’s perhaps the most important aspect to know about these garbage companies right now: I can’t see artificial intelligence (AI) replacing them anytime soon. I view them the same way I view airports, cell towers, pipelines, data centers, and railroads.

They’re HALO assets: Heavy Assets with Low Obsolescence. Or, if you’d prefer, they’re AI-proof. And that’s a big deal.

So let's look at three companies that have turned America's garbage into some remarkably attractive economic moats.

Waste Management (NYSE: WM) began in 1968, when Wayne Huizenga, Dean Buntrock, and Larry Beck combined smaller waste businesses into one big company. Today, it’s North America’s largest environmental services company.

Waste Management boasts an integrated network of collection routes, transfer stations, recycling facilities, and landfills – all of which come together to form a moat. It’s definitely one of those all-in companies that makes money from multiple points along the way: collecting the garbage, moving it through transfer stations, and ultimately disposing of it in its own landfills.

In short, it doesn't just own the dump. It controls the road leading to it.

Yet its valuation looks reasonable today, with shares trading at about 25.9x earnings compared with their historical 27.6x multiple. Waste Management yields around 1.8% and has increased its dividend for 22 consecutive years.

Meanwhile, analysts forecast earnings growth of approximately 8% in 2026, 11% in 2027, and 10% in 2028.

I’m giving it a 20% 12-month total-return estimate based on three potential contributors: continued earnings growth, modest multiple expansion toward the company’s historical valuation, and its dividend.

Waste Connections (NYSE: WCN) was founded in 1997 by Ronald Mittelstaedt, who saw an opportunity to build a different kind of waste company. Rather than battling larger competitors in major metropolitan markets, it expanded through acquisitions into secondary, rural, and suburban markets across the U.S. and Canada.

That strategy remains central to its business today.

Waste Connections provides collection, transferring, recycling, and disposal services, with many markets supported by strategically located landfills and transfer stations. The company also benefits from exclusive arrangements and franchise agreements in certain markets.

The economics get better as density increases. Add another customer to an existing route and the truck, driver, and infrastructure are largely already there. That can mean more revenue per truck, greater efficiency, and better margins.

The balance sheet also supports the thesis, with Waste Connections carrying an investment-grade BBB+ credit rating.

Shares currently trade at around 28.7x earnings versus a historical multiple of 30.2x. The dividend yield is modest at 0.83%, it’s true. However, it’s also important to note that Waste Connections has now increased its dividend for eight consecutive years.

Plus, the real attraction here is growth. Analysts forecast earnings growth of approximately 13% in 2026, 9% in 2027, and 10% in 2028.

Given today's discount to its historical valuation, I see a wider margin of safety than investors typically see with WCN. My 25% 12-month total-return estimate assumes continued earnings growth, some normalization from the current 28.7x multiple toward the historical 30.2x level, and the dividend.

In other words, I don't need Waste Connections to do anything amazing here. I just need it to keep executing while Mr. Market gradually recognizes the value of its local-market advantages.

Republic Services (NYSE: RSG) was founded in 1996 and grew through acquisitions – most notably its 2008 merger with Allied Waste Industries. Today, it’s one of North America's largest environmental-services companies, providing waste collection, recycling, transfer, and disposal services.

Like Waste Management, Republic's advantage isn't simply the trucks. The company has built an integrated network of collection routes, transfer stations, recycling facilities, and landfills, allowing it to control more of the waste stream from the customer's dumpster to final disposal.

Naturally then, there's plenty to like financially. Republic carries an A- investment-grade credit rating, yields approximately 1.3%, and has increased its dividend for 22 consecutive years.

What isn’t so attractive is its valuation, unfortunately. Republic currently trades at 29.6x earnings, and that’s well above its historical multiple of 24.8x.

Unlike WM and WCN, I just don't see an adequate margin of safety at today's price. So I can’t recommend it today.

Though feel free to put it on your stock wish list. If the stock drops to a more reasonable price, it could be a great fit for your portfolio.