Fundamentally, the company sits at the intersection of consumer and industrial activity, pricing power and cost pass-through. That’s because the underlying business tracks physical economic throughput, as waste volumes correlate with commercial activity, construction, manufacturing and consumer spending. So long as businesses are producing, building and selling, waste gets generated. If activity slows down, these volumes flatten or decline.

In addition, Waste Management offers a critical clue regarding inflation reality. To be sure, the company commands strong contractual pricing and escalation clauses. Nevertheless, it still faces costs related to labor, fuel and regulations. Therefore, if the services giant can raise prices and maintain profit margins, such a dynamic implies that inflationary pressures are being absorbed by the economy.

On the other hand, if margins compress or pricing stalls, this circumstance may signal that demand elasticity is finally biting. Therefore, the specific details of the financial print, along with the market’s response to the WM stock, offer a much more substantive gauge of inflation.

For Waste Management specifically, Wall Street analysts will be looking for earnings per share to hit $1.95 on revenue of $6.39 billion. In the year-ago quarter, the company posted EPS of $1.70 on revenue of $5.89 billion. Both figures missed the consensus targets of $1.80 and $5.91 billion, respectively, thereby raising the stakes for WM stock moving forward.

Still, it should be noted that Waste Management is off to a solid start to the new year. Since the January opener, WM stock has gained more than 4%. Interestingly, the options market may be pointing to additional upside ahead.

How the Smart Money is Positioned Optimistically in WM Stock

Before you start jumping into a trade, it’s important to consider the parameters of the battlefield. This broad market intel is provided by the Black-Scholes model, which is Wall Street’s standard mechanism for pricing options. There’s a lot of mysticism involved with this system, so I’ll break it down for you.

Essentially, Black-Scholes is a formula that assumes stock prices form a lognormal distribution. By this logic, an analyst can integrate volatility and days to expiration of a select options chain to extract a likely range of forward outcomes that symmetrically fall within one standard deviation of the spot price.

For example, the above formula states that for the Feb. 20 options chain, WM stock will likely land between $219.33 and $236.71. This dispersion represents a 3.81% high-low spread relative to the spot price of $229.23 (Friday’s close).

Without getting bogged down by the math, the Black-Scholes model is saying that 68% of the time, we would expect WM stock to fall between roughly $219 and $237 on Feb. 20. While it’s possible that WM stock could fall outside this range, that would mean that the move would be greater than one standard deviation — and such a bold forecast would require hefty evidence.

Although the above insights are meaningful, we’re still left clueless as to any bias implemented by smart money traders. That’s where volatility skew becomes an important screener. This dataset identifies implied volatility (or the expected kinesis of a security) across various strike prices for the same expiration date. With WM stock, call IV stands above puts throughout the pricing spectrum for the Feb. 20 options chain.

What’s the significance of this volatility skew? First, the deep in-the-money (ITM) calls suggest synthetic long ownership of WM stock among institutional investors. It’s possible that these participants prefer the flexibility or leverage of options rather than outright ownership. Second, and perhaps more significantly, derivative market traders are exposed to the possibility of an outsized performance.

Quantitatively, this exposure may be quite prudent.

Sifting Through the Noise with a Second-Order Analysis

To recap, the options battlefield for the Feb. 20 expiration date suggests an approximate dispersion of WM stock of between $219 and $237. Further, we know from volatility skew that the smart money is net bullish. However, being smart doesn’t necessarily translate to being prescient. To get a better understanding of where WM is likely to end up, we need to conduct a second-order analysis using the Markov property.

Under Markov, the future state of a system depends solely on the current state. That’s a fancy way of saying that forward probabilities shouldn’t be calculated independently but that influencing context should be taken into account. To use a simple sports analogy, a 20-yard field goal attempt in football is considered a guaranteed three points. Add the context of snow, wind and playoff pressure and the odds will likely change — and quite dramatically.

For WM stock, the current context is that, in the last 10 weeks, the security printed seven up weeks, leading to an overall upward slope. Under this quant signal, the forward 10-week returns would likely range between $226 and $240, with probability density likely peaking around $235. Over the next five weeks, WM would probably range between $230 and $240, with density peaking around $236.

In effect, we now have a much narrower range to target, allowing us a more reasonable speculative profile. Based on the market intelligence above, the most reasonable trade may likely be the 230/240 bull call spread expiring Feb. 20. This trade would require WM stock to rise through the second-leg strike ($240) at expiration. If it does, the payout would stand at 115%. Breakeven would land at $234.65.

Closing Notes About Waste Management Stock

Primarily, we would be targeting the 230/240 bull spread using the principle of statistical induction. By observing how WM stock responds to the 7-3-U sequence, we are anticipating that a similar dynamic will materialize. If so, the most realistic outcome would likely make the aforementioned spread a compelling speculative proposition.

That said, please be aware that induction has its limits — there’s really no law that states that WM stock must act in accordance with established conditional behaviors. Also, because IV is heightened for calls through the Feb. 20 strike price spectrum, bullish exposure will not be cheap.

In other words, being optimistic about Waste Management isn’t a contrarian position; it’s actually the expected posture among the pros. So, while WM stock might not be the most exciting trade, it is arguably a smart one.

Waste removal is often thought of like electricity, water, or gas. That is, a boring business model with below-average market returns. However, there’s a big investment opportunity in these stocks, as long-time investors would know.  

In the last 10 years, the average annual total return (stock price growth + dividends) of the S&P 500 has been approximately 10% to 11% per year. Which means that’s the return you would have received if you had invested in the SPDR S&P 500 ETF Trust (NYSEARCA: SPY), a benchmark index for the S&P 500.

That’s a solid return and well above the average rate of inflation. However, several stocks you could have owned would have garnered an average return of three times that of the SPY and even higher.  

The best part is that you could have had this return without venturing into risky penny stocks of unprofitable companies. Instead, you could have been sleeping well at night with your money invested in cash-rich companies that have beaten the pants off the total return in the S&P 500.  

The takeaway is that waste removal will continue to be big business. That’s why there’s still an opportunity with these attractive waste removal stocks. 

Waste Management (WM): Turning Waste Removal into Long-Term Cash Flow 

Waste Management is considered the creme de la creme of waste removal companies. The company has about one-third of the total market share in the United States. That revenue is contracted by municipal and commercial customers.  

In fact, about 90% of the company’s total revenue comes from trash collection services. This gives the company strong annual recurring revenue and makes it an attractive “all-weather” stock for risk-averse investors. Plus, the company has nearly unmatched pricing power that turns that revenue into profits that it can put back into the business or return to shareholders. 

However, the long-term story for Waste Management is about sustainability. About 7% of the company’s revenue comes from its recycling business. The company has about 17.5% of this market currently and sees it as one of its primary growth drivers over the next few years. 

Recycling is only one part of Waste Management’s overall sustainability narrative. The company is also making significant investments in renewable energy, specifically renewable natural gas (RNG).  

The company has invested approximately $1.6 billion towards the completion of 20 RNG plants. These plants convert landfill methane into fuel that the company can use for its fleet and other customers. In addition to the sustainability angle, these initiatives (recycling + RNG) are expected to deliver between $760 million and $800 million of incremental annual adjusted operating EBITDA.  

Over the last decade, WM stock has delivered a total return of over 380%, more than triple the S&P 500’s average. At 31x earnings and 27x forward earnings, WM stock is trading at a premium to the S&P 500. However, it’s trading at a discount to its own historical average, which adds to the Waste Management bull case. Analysts are forecasting 13% earnings growth in the next 12 months. 

Plus, free cash flow is now projected to be between $2.8 and $2.9 billion. This means Waste Management should have no problem sustaining and growing its dividend, which it has increased for the last 22 years.  

Republic Services (RSG): Efficiency, Scale, and ESG Tailwinds 

Republic Services is the clear number two behind Waste Management in terms of market share, claiming about 20% of the market. About 65% of the company’s revenue comes from its Recycling and Waste business (about $105 billion).  

This presents investors with an attractive baseline of annual recurring revenue backed by long-term contracts. Republic Services also has a 94% retention rate on those contracts.  

Like Waste Management, Republic Services is committed to sustainability in more ways than recycling. The company’s Sustainability Innovation Center is driving growth in advanced recycling technologies as well as circular economy solutions and renewable energy recovery.  

In the last 10 years, RSG has delivered a total return of over 580%, nearly five times that of the S&P 500 and better than WM stock. Included in that is the company’s dividend, which it has increased for 22 consecutive years. For its 2025 fiscal year, Republic Services is forecasting free cash flow between $2.375 and $2.415 billion. 

And like Waste Management, RSG stock is attractively valued even at 33x earnings, which is a discount to its historical average.