Early on in the teaser ad for his Unconventional Wealth newsletter, Andrew Snyder tells us that he’s discovered an investment so mysterious and profitable that he had to make up words to describe it … like “reverse mining” — here’s how he puts it:
“If you’ve never heard of reverse mining, you’re not alone. I had to make the term up. Because what this company does is so unique, there’s really no way to describe it with typical jargon….
“Forgive me if I’m a little coy about describing the nuts and bolts of what exactly reverse mining is and how it works.
“So many people rip off my research these days, I don’t like to put it out just anywhere.
“I want only serious investment-minded folks to get all of the info I’ve put together.”
Which is sort of like waving a giant orange flag over your head and shouting, “Hey, Stock Gumshoe! You haven’t written about me for a while, don’t forget about us!”
And it worked. Because here I am, writing about him. And trying to figure out what on earth he’s talking about with his “reverse mining” jibber jabber and the cloaked-in-secrecy “Ten Hills Technique” that has something to do with natural gas.
No, don’t worry — it’s not another “fracking” article, nor an article about a company that supplies key gas fracking materials or that has a fabulous new technique that allays fracking fears. Nope, this one is off on a different tangent. So what is he talking about?
Well, assuming that we’re all “serious investment-minded” folks who don’t particularly wish to shell out $49 for his “entry level” newsletter, let’s see if we can’t figure out what this “Patented reverse-mining technology” is, shall we? Don’t worry, we won’t charge you for the answer (though we always do delight in seeing new paid members sign up, too), though we will take up just a bit more of your time as we sift through the hints and clues from the ad — like these:
“Have You Heard of the ‘Ten Hills Technique’?
“Revealed: A patented reverse-mining technology has cemented a virtual monopoly for one surprising company… here’s how you can bank big gains by getting in before word gets out.
“Some say it creates an unfair advantage. I say, who cares?
“There are BILLIONS of dollars at stake….
“There’s one company out there that’s tapped a hidden natural gas reserve, using what I call the Ten Hills Technique.
“And the results are staggering.
“The company’s business doesn’t involve fracking or any other means of conventional drilling. Hell, it doesn’t even care if natural gas prices hit historic highs or historic lows.
“What it’s doing is so ingenious and creates such an unfair advantage that it seems criminal.
“But I assure you, it’s 100% legal.
“In fact, some local governments across the country are going out of their way to eliminate its competition….
“The government has passed laws so lopsided in one company’s favor, it’s appalling.
“The good news is that the company I’ll reveal to you today is on the receiving end of some of the biggest sweetheart deals in its industry.
“Through aggressive negotiations, it has managed to grab exclusive contracts for its services. Not just in the United States, but in most of North America.
“Some have gone so far as to accuse the company of bribery.
“For example, in Seattle, the city government recently changed a piece of municipal code to ensure that there is next-to-no competition for the company using the Ten Hills Technique.”
Which brings up, of course, the feelings that the copywriters behind this ad really want us to have: How dare they sneak in and get back door deals with the government? Damn fat cats!
Um, and, uh, just between you and me, how can I get a piece of that action?
The details are a little bit skimpy in this one — since, you know, they have to keep “reverse-mining” hush hush lest those of us who aren’t “serious minded” enough learn about it — but they do toss out a few hints for us amid the blatheration, and it looks like there are enough hints to feed the Thinkolator up pretty good:
“… what every broker is missing about this gem is just how unfair of an advantage it has over other companies.
“In fact, this secret is just one tool in its arsenal that it has used to secure a place as the largest company in North America in its business sector.
“Not only is it incredibly good at its core business, but with the Ten Hills Technique, this company operates with virtually zero costs in parts of its business.
“How can other companies compete with it when it runs some of its operations nearly cost-free? …
“… the company that perfected the Ten Hills Technique recently said that the feedstock it mines could be worth up to $40 BILLION per year in energy….
“This patented method actually extracts natural gas from a resource that will NEVER go away.
“In its simplest form, reverse mining is the process of taking a resource that virtually everyone places zero value on, burying it in a specially designed, patented container and then applying a patented extraction technique to mine the natural gas it produces.
“That’s why I call it ‘reverse mining.’
“Forget outdated prospecting to find a pool of natural gas. And forget spending millions of dollars on a geological survey to find the gas and then frack it.
“This company has a virtually unlimited supply feedstock to “mine” into natural gas.
“And the beauty is, it gets PAID to handle the feedstock too. In fact, it makes $12 billion per year for just doing that.
“You may even be paying this company to ‘mine’ the natural gas and not even realize it. Millions upon millions of Americans are.”
Which is probably, on its own, just barely enough to feed into the Thinkolator — I can tell you up front, for example, that a resource with zero value that generates natural gas almost certainly means we’re talking about landfills and methane … but to be sure, let’s take a look at a few more clues:
“It’s no secret that natural gas prices have fallen to 10-year lows.
“So why am I so excited about a company that can create a virtually unlimited supply of it?
“The simple answer is that this company doesn’t sell it.
“As of now, the company has 131 sites that can convert the gas to electricity. That number is planned to grow to 160 sites by 2013.
“The company creates enough electricity by burning the gas it produces to power more than 1.2 million households. And it plans to up that number to 2 million homes by 2020.
“This gem also uses the reverse-mined gas to power 300 of its fleet vehicles.
“And remember, it is PAID to take the feedstock to create this energy.
“Do you see just how unfair this could be to another company trying to compete in its space?
“The competition has to pay to fill up their fleet vehicles with diesel fuel. At last check, diesel was as high as $4.07 per gallon in the U.S.
“And because the technology is patented, the competition doesn’t have the advantage of using the Ten Hills Technique — at least not the highly advanced method this company uses.”
So yes, it looks like our initial guessing was on the right track … but now we toss all that info into the Mighty, Mighty Thinkolator and get our nice, specific answer out the other side — the company behind the “Ten Hills Technique” and “reverse-mining” is … Waste Management (WM)
Which you’ve probably heard of, even if you don’t see their big green and yellow trucks driving around your neighborhood picking up trash. They are the largest private trash hauler and landfill owner in the country, they carry quite a bit of debt (lots of capital goes into those landfills and trucks), and they pay a very nice and growing dividend (about 4.4% right now).
And, yes, they burn a lot of methane — and in some cases that gas is being converted on-site to run their fleets of garbage trucks (Waste Management has also been a big customer of Cummnins Westport in the past, buying Compressed Natural Gas engines for their fleet vehicles — since trucks that never get too far from a central refueling station are the perfect vehicles to run on alternative fuels like natural gas that don’t yet have strong distribution networks). Easier still, of course, is running small natural gas generation plants on old landfills that use the methane generated from the decomposition of the garbage, and that is done at hundreds of landfills, including more than 100 run by Waste Management — they have indeed said that they generate enough electricity to power 1.2 million homes now, and they are aiming for 2 million by 2020.
Waste Management is a huge and entrenched player in a complicated, tightly regulated, and inherently monopolistic business, which often does make for pretty good investing — it’s notoriously difficult to open new landfills even in rural areas, and the cost of starting up a new garbage collection network is a big deterrent to major competition, though they do, of course, have a couple large competitors and plenty of small haulers to compete with and/or acquire in any new market that they might try to enter as they expand.
They are also, and this is what probably turns investors off more than anything else, not growing — or at least not growing very fast. They and their main large competitor (Republic Services, ticker RSG) are both facing slow declines in earnings in some quarters and slow growth in others, and low-single-digit revenue growth, which doesn’t get anyone very excited … there is not a single analyst recommending a “buy” on Waste Management right now, according to the compiled ratings at Yahoo Finance, and almost all of them call it a “hold.”
It’s hard to argue with that — earnings have been flat for five years, so even though analysts do see next year bringing a jump in earnings of 12% or so that’s not quite enough to get folks revved up. The stock is right about in the middle of its trading range for the past year at $32, and actually that’s also probably pretty close to the average price over the last five years. For those who are worried about the next wave if financial crises hitting our shores sometime soon, it’s worth noting that the stock bottomed out around $23 during the 2008-2009 swoon and recovered pretty quickly — not taking out the trash, after all, is not really an option.
Which isn’t to say that the trash business is necessarily hitting on all cylinders — there is certainly some cyclicality to it, and collection volumes dropped by 6-8% during the recession (less construction, less commercial demand), but collection trends seem to be generally down, period, with most non-recession years lately seeing a decline in collection volume of maybe one or two percent.
Their goal is to get “internal revenue growth” from the core collection and disposal business of 2%, and to try to keep that between 50-100 basis points above the CPI. They’ve been generating earnings growth or trying to generate earnings growth in recent quarters through cost savings, cross-selling and acquisitions, and initiatives like new recycling programs or techniques to increase volume (electronics recycling, building materials, “single stream” recycling, etc.) and “waste-to-energy” to augment their core business — though traditional collection and landfill operations still generate 75% of their revenue.
Still, I do like that the company appears to be thinking long term, investing in new projects to generate incremental income or cost savings (like the “landfill to fuel” project — you can see their video about that here), and they have good strategic focus on return on invested capital and on margin improvement, with project investments that require internal rates of return between 11-17% depending on the investment type, so they are thinking like a big, slow-moving company that’s supposed to generate steady returns for shareholders — which is important, if you have a company that’s very profitable but not growing very fast, and in a mature industry, you want them focusing on their strengths and on rewarding shareholders, not on how to make big bets to spark much faster growth. So the fact that they’ve raised the dividend annually for eight years in a row, including during the recession, is good in my book.
I don’t know if Andrew Snyder is right about all the analysts underestimating Waste Management, but they do have a good lock on a strong core business, a general lack of harmful competition in a lot of their markets, and some good strategies to squeeze out efficiencies and to make use of their “extra” assets (like that natural gas that’s generated naturally in decomposing organic waste). I don’t think natural gas will be driving the results for WM overnight, but it’s helping — and probably the fact that they’ve been aggressive about converging trucks to natural gas even where they don’t generate the fuel themselves has been a solid cost-savings strategy over the last few years, too.
They’re not going to double earnings, but they might boost earnings by 10% or a little more in their best years, and they’ll probably generate single-digit increases in earnings and dividends most of the time in the years to come. Sometimes, that’s just fine — and you get a 4.4% yield while you wait, so it may be best to compare this to other utility-like companies you might like, whether it’s a Verizon (VZ) or AT&T (T) or a more traditional utility like Excelon (EXC) or Con Ed (ED), almost all of them yield somewhere in the neighborhood of 4-5% and have large debt loads that are funding large and irreplaceable assets that people need to use every year, and almost all of them try to boost their dividend by at least a little bit every year.
Does WM sound like the pick for you? They have been a bit less volatile than fellow big-trash company Republic Services in recent years, and with better overall stock performance, but the companies are fairly similar on the surface when it comes to earnings performance, overall growth (or lack thereof) and dividend yield (though WM has been more consistent with dividend growth). Let us know if you’re a fan or foe of the garbage folks with a comment below.
P.S. Yes, “Ten Hills” does actually mean something — the first landfill gas-to-electricity project started operating in 1988 at the Palos Verdes landfill near Los Angeles … it’s not owned by Waste Management specifically, but is historically important in getting that ball rolling (regulation also helped in enabling these projects, specifically requirements that utilities buy electricity from these small-and-otherwise-maybe-not-worth-the-effort projects). And Palos Verdes is in an area that was once referred to as “Ten Hills.” Gas production from landfills is far older, though it has often been more of a problem than a revenue generator (since it can make landfills catch fire or explode if the gas isn’t vented properly — so many landfills have historically just burned off the gas), and this particular landfill had also collected and produced methane for close to 20 years before that, but the move to actually turn the gas into electricity on site was new in 1988. So they didn’t make up “Ten Hills” for this ad, though they may have had to crack their history books.