Casella Waste: Now Best Prospect Among Government Services Stocks (NASDAQ:CWST)

The primary focus of this article is Casella Waste Systems, Inc. (NASDAQ:CWST), a NYSE-listed stock.

Investment Thesis

The secondary purpose is to broaden reader information sources and sharpen how they may best be used to build spendable-now or future-retirement capital.

Knowing when and which stocks to own, actively and selectively, provides a continuing series of net capital gain opportunities delivering wealth accumulation or spendable income at rates which are multiples of what the market-index ETFs offer.

You can know what winning institutions know about capital-building stock situations by listening to what the markets tell as capital is being invested. Telling because today’s markets pay active investors for being in the right places at the right times. They feed off the indolence of passive-strategy investing buy & holders who frequently pass-up timely points of profitable position liquidation.

Increased information technology, communication capabilities, and rapidly evolving competitive practices make this century’s investing markets far more opportune with pricing activity than were offered in the 20^th century.

But an active investment strategy requires reasonably-accurate forecasts of what to expect. Fortunately, the conditions creating the “hazards” feared by the buy & holders are what provide the needed forecasts. The markets themselves, in their interactions, define what the best-informed professional practitioners see as coming-price limits. In both directions.

Instead of forecasts by analysts of what may be hoped for as price/earnings targets to be sought, the markets define ranges within which prices are reasonably being expected to occur. Ranges which warn of currently un-maintainable excesses, and of price depressions unlikely to present buying bargains for long.

But if this is not a suitable practice for your situation, continue to ignore it and continue your investment education elsewhere. We are pleased to have your persistent support, rather than competition which might erode our wealth-building competitive productivity.

Description of primary investment subject

“Casella Waste Systems, Inc., together with its subsidiaries, operates as a vertically integrated solid waste services company in the northeastern United States. It offers resource management services primarily in the areas of solid waste collection and disposal, transfer, recycling, and organics services to residential, commercial, municipal, institutional, and industrial customers As of January 31, 2022, it owned and/or operated 50 solid waste collection operations, 65 transfer stations, 23 recycling facilities, 8 Subtitle D landfills, 3 landfill gas-to-energy facilities, and 1 landfill permitted to accept construction and demolition materials. Casella Waste Systems, Inc. was founded in 1975 and is headquartered in Rutland, Vermont.”

Source: Yahoo Finance.

These growth estimates have been made by and are collected from Wall Street analysts to suggest what conventional methodology currently produces. The typical variations across forecast horizons of different time periods illustrate the difficulty of making value comparisons when the forecast horizon is not clearly defined.

This set illustrates in the extreme some of the limits accepted by “the investing public” of many individual investors. Knowledgeable and responsible investors represented by the “institutional investor community” demand more.

Risk and Reward Balances Among Specialty Retail Providers and Facilitators

Let’s look at their view of an “Opportunity Set” of comparable companies ranging from most to least attractive to consider in one particular area of activity today – the Internet as a means of getting things done. One of their best-buy bets is CWST; a direct, larger competitor is Waste Management, Inc. (WM). Here in Figure 1 is how the markets currently appraise the alternative Reward ~ Risk trade-offs.

Figure 1

(Used with permission.)

Upside price rewards come from the behavioral analysis of what system transactions require to be done. Not of emotional investor errors by Market-Makers [MMs] as they need to protect their at-risk capital from possible damaging temporary future price moves while negotiating big-volume trades among institution-clients. Their potential reward forecasts are measured by the green horizontal scale.

The risk dimension is measured from actual price drawdowns at their most extreme point while being held in previous pursuit of upside rewards similar to the ones currently being seen. They are measured on the red vertical scale.

Both scales are of percent change from zero to 25%. Any stock or exchange-traded fund (“ETF”) whose present risk exposure exceeds its reward prospect will be above the dotted diagonal line. Capital-gain attractive to-buy issues are in the directions down and to the right.

Our principal interest is in CWST at location [6]. A “market index” norm of reward~risk tradeoffs is offered by SPDR S&P 500 Trust ETF (SPY) at [2]. Most appealing by this Figure 1 view is WM at [3].

The Figure 1 map provides a good visual comparison of the two most important aspects of every equity investment in the short term. There are other aspects of comparison which this map sometimes does not communicate well, particularly when general market perspectives like those of SPY are involved. Where questions of “how likely’ are present other comparative tables, like Figure 2, may be useful.

Figure 2

(Used with permission.)

Why do All This Math?

Figure 2’s purpose is to attempt universally comparable answers, stock by stock, of: a) How BIG the prospective price gain payoff may be, b) how LIKELY the payoff will be a profitable experience, c) how SOON it may happen, and d) what price drawdown RISK may be encountered during its active holding period.

Readers familiar with our analysis methods after quick examination of Figure 2 may wish to skip to the next section viewing price range forecast trends for CWST.

Column headers for Figure 2 define investment-choice preference elements for each row stock whose symbol appears at the left in column [A]. The elements are derived or calculated separately for each stock, based on the specifics of its situation and current-day MM price-range forecasts. Data in red numerals are negative, usually undesirable to “long” holding positions. Table cells with yellow fills are of data for the stocks of principal interest and of all issues at the ranking column, [R]. Table cells with pink background “fills” signify conditions typically undesirable for “buy” recommendations.

Notable pink-filled cells here mostly have to do with the extent of actual market history available. They are significant for the top-ranked stocks in column [R]. We would like to use prior experience to encourage present-day actions seeking future profits.

That is not difficult for CWST where sixty 21-market-day months provide available history, and as most alternate investment choices have 5 years of 1261 continuous market days. Our acceptable alternates need 3 years of 750+ market days, and a sample of at least one month’s prior risk-to-reward balance days like today’s.

The price-range forecast limits of columns [B] and [C] get defined by MM hedging actions to protect firm capital required to be put at risk of price changes from volume trade orders placed by big-$ “institutional” clients.

[E] measures potential upside risks for MM short positions created to fill such orders, and reward potentials for the buy-side positions so created. Prior forecasts which were like the present provide a history of relevant price draw-down risks for buyers. The most severe ones actually encountered are in [F], during holding periods in efforts to reach [E] gains. Those are where buyers are emotionally most likely to accept losses.

The Range Index [G] tells where today’s price lies relative to the MM community’s forecast of upper and lower limits of coming prices. Its numeric is the percentage proportion of the full low to high forecast to be seen below the current market price.

[H] tells what proportion of the [L] sample of prior like-balance forecasts have earned gains by either having price reach its [B] target or be above its [D] entry cost at the end of a 3-month max-patience holding period limit. [ I ] gives the net (gains minus losses) of those [L] experiences.

What makes CWST most attractive in the group at this point in time is its ability to produce capital gains most consistently at its present operating balance between share price risk and reward at the Range Index [G]. At a RI of 11 today’s price expectations set 89% of their prospects favorably to the upside. Not our expectations, but those of Market-Makers acting in support of Institutional Investment organization clients in the process of building the values of their typical multi-billion-$ portfolios.

Credibility of the [E] upside prospect as achieved previously at today’s RI in the [I] payoff at +13.3% is shown in [N].

Further Reward~Risk tradeoffs involve using the [H] odds for gains with the 100 – H loss odds as weights for N-conditioned [E] and for [F], for a combined-return score [Q]. The typical position holding period [J] on [Q] provides a figure of merit [fom] ranking measure [R] useful in portfolio position preferencing. Figure 2 is row-ranked on [R] among alternative candidate securities, with CWST in top rank.

One important notion from this analysis is that much of internet content, despite its appealing presence and enthusiastic presentation provides little revenue-generating investment opportunity. Hot spots may get intense, but they are relatively few and are likely to vacillate through time.

Along with the candidate-specific stocks these selection considerations are provided for the averages of near 3,000 stocks for which MM price-range forecasts are available today, and 20 of the best-ranked (by fom) of those forecasts, as well as the forecast for SPY as an equity-market proxy.

Current-market index SPY is only moderately competitive as an investment alternative. Its Range Index of 39 indicates little more than half of the market index’s forecast range is to the upside, while only two of every three similar prior previous SPY forecasts at this range index produced profitable outcomes according to column H data.

As shown in column [T] of figure 2, the risk to reward prospect levels vary significantly between stocks. What matters is the net gain between investment gains and losses actually achieved following the forecasts, shown in column [I]. The Win Odds of [H] tells what proportion of the Sample RIs of each stock were profitable. Odds below 80% often have proven to lack reliability for investors seeking capital gains.

Recent Forecast Trends of the Primary Subject

Figure 3

(Used with permission.)

Many investors confuse any time-repeating picture of stock prices with typical “technical analysis charts” of only past stock price history. These are quite different in their content. Instead, here Figure 3’s vertical lines are a visual record of daily-updated price range forecast limits expected in the coming few weeks and months. The heavy dot in each vertical is the stock’s closing price on the day the forecast was made.

That market price point makes an explicit definition of the price reward and risk exposure expectations which were held by market participants at the time, with a visual display of their vertical balance between risk and reward.

Figure 3, above, provides better perspective of CWST’s price activity with its weekly updates over the past two years than does our regular presentation of the past six months of daily-updated forecasts. The end of year makes this visually effective, but actual price comparisons with other investment alternatives must be on the same date, the ones shown in Figure 2.

The measure of that balance between Risk and Reward prospects is the Range Index (RI). With today’s RI of 11 there is an 10.2% upside price change in prospect. Of the prior 49 forecasts like today’s RI, 47 have been profitable. The market’s actions of prior TRMD forecasts became accomplishments of +13.3% gains in 44 market days each, or only 8+ weeks. So history’s advantage could be repeated some 5+ times in a 252 market-day year, which compounds into an advantageous annual CAGR of +104%. CWST’s direct competitor, WM currently offers capital gain prospects of only a fraction of that.

To develop a realistic perspective, a return to Figure 2 is advisable. There the average profitability of investable stocks is shown by the average of near-3,000 stocks shown in bold blue print, and currently offers realized gains [I] of only +2.5% in 58 market days out of 252, nearly one-fourth of a year. The current market-average CAGR is only 14%, and the performance of SPY is actually below that at a 9% CAGR average.

But while the overall market is under a lot of negative discussion, the best-performing and best-offering 20 stocks in the population average about half again prospects as much as CWST.

Conclusion

Based on direct comparisons with other Government-services Stock participants, there are strong wealth-building reasons to prefer a capital-gain seeking buy in Casella Waste Systems, Inc. over other examined alternatives.