In the investment business, it is good to be “an idea guy.” Almost as good is to be within earshot of one. In the 1970s and 1980s, the brokerage firm E.F. Hutton had a famous advertising slogan: “When E.F. Hutton talks, people listen.” I can’t claim I started to look at waste management company Republic Services until Carter Braxton Worth of Worth Charting discussed the technical setup on Friday during “Fast Money.” I cannot do his technical analysis justice by rehashing it here, and I encourage you to find and watch that segment . The short version, though: RSG, after a tremendous rally since early 2023, has definitively dropped below the 150-day moving average and, according to Carter’s work, has likely entered a bullish-to-bearish reversal. Tim Seymour of Seymour Asset Management, who was also on the show, pointed out that though the waste management business is a solid one, at its current valuation of 34 times forward earnings, Republic has become expensive relative to the market. It’s also pricey compared to its own 10-year average multiple. Peers like Waste Management often trade at P/E multiples in the mid-20s to high 20s. Intrinsic value assessments further support concerns about overvaluation: one model estimates RSG as overvalued by 27%, with an intrinsic value of approximately $201.03, compared to the current market price of $230.02. Enterprise value-to-EBITDA is probably only 5%-7% above the company’s own historical ratio, but that is perhaps another 10%-12% above the mean multiple for the industry. While projected earnings growth of 7.9% per annum and revenue expansion of 5.3% provide some support, these are at best in line with expectations for revenue and earnings growth for the S & P 500 overall which trades at a cheaper multiple, offers greater diversification — and will always capture the largest and most successful publicly traded businesses. For options traders, the relative stability of the waste management business may provide another opportunity. Because the business is quite stable, options premiums tend to be low. While this is justified by relatively low realized volatility in the stock price, it does help make directional bets using options less expensive. Frequent readers will know that I generally do not favor simply buying options to make directional bets. But, when options prices are low and one has a bearish view and a bearish setup, they can make more sense than a short position in the stock, which carries (theoretically) unlimited risk. For example, a trader could spend $4 on a November 220 put, less than 2% of the current stock price, to make a bearish bet. A 220/210 put spread would cost just over half that amount, at $2.05 per share ($205 per contract, as each contract represents 100 shares). DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
