Cash is King, as they say. But who is they? The idiomatic phrase originated in the financial arena, specifically with regards to investments and keeping liquid assets, but the reference to the King leads to many assumptions. Kings have lots of cash, which provides opportunity and power. History tells us that just because Kings have the cash doesn’t mean that they always make sound decisions, but who is going to say no to a King? Keep in mind that the Trojan War was waged because of one woman, Henry VIII didn’t need sound reason and logic to start wars, kill wives or order a beheading, and even the fictional King Joffrey (shameless Game of Thrones plug) seems to completely lack common sense and morality in his decisions. Regardless of what history we consider, two resounding themes are maintained: the Kings have all the cash, and a King’s Court Jester is doomed to a sad and pitiful plight.
The Court Jester was expected to appear and perform on a consistent basis, and typically did so in a way that would entertain the masses, but on a bad day the jester could be unforgivingly removed from the court at best, and killed at worst. The value of the Jester was easily dismissed, as it provided the consistent and steady demeanor of the entire Court.
Fast forward to the current days of democracy, distributed wealth and stock markets, and we find the modern day court jester in the form of undervalued stocks. Such stocks could prove to be cash kings, and were highlighted by the Wall Street Journal this week, which focused on the major players in the trash and dumpster industry. What it goes on to explain is that trash is consistent, trash is big business, and more so than most industries, trash is dominated by two industry giants with little competition to impair value.
These giants, Waste Management and Republic Services, not only control residential and commercial trash pickups and disposals, but also the short and long term dumpster rental industry. The kicker though, and the reason why they have the trash disposal market completely cornered, is because they own two-thirds of the landfills, which are a cash cow given their necessity for trash disposal. What these facts should lead to is stock growth, but instead an otherwise consistent stock is being dumped, just like the trash that bolsters its value.
As a result of the economic downturn, there was less available cash, and therefore less spending which affected the trash industry just the same as anything else. Less spending meant less purchase of goods that create household trash, less development and improvement projects that lead to less roll off dumpster rentals, and less commercial development which lead to less construction dumpster contracts. The results of these economic downturns would have caused steep drop-offs for most related stocks, whereas the trash industry simply failed to experience growth. In the current climate, a steady stock is a safe stock and is one that is worth waiting out. Take it from a major investor, and one of the smartest people in the world, as Bill Gates’ private investment firm just invested $360 million in the trash industry.
Cash is King, and if you want to live like a King, don’t drop your Court Jester just because of one bad performance.