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America's Trash:  Investors' Treasure

Looking for a stock with solid fundamentals, isolated from the credit crisis, resistant to recession? Brian Butler wants you to think garbage.

CNBC.com

The FBR Capital Markets analyst says garbage isn't going away -- not by itself, anyway -- and stocks in companies that remove it are selling at bargain prices right now, having been beaten down by concerns over declines in construction and the waste that construction generates.

"A good 80 to 85 percent of their business is simple...residential collection, commercial collection, and in a slowing economy, that doesn't really go away," Butler told CNBC.

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It also builds a business that's been remarkably generous to its stockholders.

"This is a business where they generate a ton of cash," he said. "I think when you generate a ton of cash, you want to make everyone happy, and the way to do that is, pay a dividend, and return it via share buybacks. Clearly, Waste Management has been doing that. They have a 3.2 percent dividend yield, and buybacks, $700-800 million worth of shares every year."

The other company he sees as an "investor's treasure" is Allied Waste.

"Allied Waste is a very good value buy here," he said. "The big issue that they have to overcome is perception. People continue to believe that they're very levered...I think their balance sheet position is very strong."

Waste Management also has a perception problem, dating back seven years, to the company's payment of hundreds of millions of dollars to settle a scandal, after allegedly cooking its books in the mid-1990's and breaking securities laws during a merger a decade ago.

Butler also has a "buy" rating on Waste Connections and Waste Services .

Caution:

So what about the effects of environmentalist efforts to curb the flow of trash? Is that likely

to hurt the industry?

"Ultimately, I think that will benefit the waste guys," Butler said. "Yes, it will be less waste into the landfills, but more recycling. As 'going green' picks up, I think that gets more people willing to spend for recycling, and the waste guys are definitely well-positioned to offer their services."

Disclosure: Neither Butler, his family, nor his firm owns shares of Waste Management, Allied Waste, or Waste Connections. His firm acts as a market maker for shares of Waste Services.

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