There’s a Playbook for That

The S&P 500 is up 14.4% for the first half of 2021. Much of these gains were triggered by companies announcing positive earnings expectations for the second half of the year. A record 64% of companies that provided guidance exceeded Wall Street Analyst projections. Most companies have positioned the pandemic in the rear-view mirror and expect things to get better from here.  Meanwhile, the Market continues to hit all-time highs, while Wall Street seems to be overly conservative on future prospects.  The source of caution stems from expected inflation.

Blind Spots

“Bull markets end when the perception of earnings growth disappears […]. Manias, on the other hand, end when the market runs out of buyers.” – Andy Kessler

2020 ended with the world collectively eager to put a challenging year in the rear-view mirror while looking forward to the light at the end of the tunnel. The US election results are now (mostly) behind us, and we have two approved Covid-19 vaccines being distributed in the US with an additional 5 being used in other parts of the world.  What is most surprising to me is, having witnessed a year where we endured the worst global pandemic in a century, the fastest bear market in history, a global recession, and a contentious presidential election; that I would find myself in the same place I was exactly a year ago: contemplating whether the market accurately reflects the reality of our economy.  

Defying Gravity

Overall, 2019 was quite a year with most indexes increasing by roughly a third.  From a historical perspective, the period from 2010 through 2019 was the first contiguous decade in the history of the market without a recession[1].  During this period, we had only one (2018) negative year.

The gains of 2019 were phenomenal in light of the many headwinds facing investors heading into, and throughout, the year:

A Return to Rationality

In July, the current U.S. expansion became the longest on record. Gross Domestic Product (GDP) in the second quarter increased at an annual rate of 2.1% and there are still new jobs being created. While these and other government figures suggest that U.S. and global economies are continuing to expand, there is growing evidence of weakening economies internationally and signs that the current U.S. expansion is losing momentum.

Waste Connections (WCN) – “Every Tuesday and Thursday”

Company:         Waste Connections (WCN)
Sector:                Industrials – Waste and Environmental Services
Price/Market Cap:                        $83/$22B
Target Price/Implied Upside:     $107/30%

Thesis
Waste Connections (WCN) is the third largest waste disposal company in North America, and the only company focused on secondary and exclusive markets.  The company has flourished behind the leadership of a seasoned management team focused on consolidating fragmented niche markets where they can streamline operations, exert pricing power, and improve profitability.