Never waste a trade
02/08/19

●Waste Connections (WCN) recently broke out to new record highs

●Stock has outperformed the broad market by a wide range over the past three years


 

Because you may not have heard of Waste Connections (WCN), we must point out that it is not the world’s most unfortunately named dating site.

OK, cheap joke, but such punchlines likely roll right off the waste management company given its performance. WCN shares have hit record high after record high for the better part of three years, and they barely missed a beat during 2018. Yes, they dropped last February and again in October and December, but not as much as the broad market.

Waste Connections (WCN) and S&P 500 (SPX), 12/31/15–2/7/19. Waste Connections (WCN) and S&P 500 (SPX) price chart. Waste not, want not.

Source: Power E*TRADE


In fact, the chart above shows that since the beginning of 2016 WCN has rallied around 161% vs. 30% for the S&P 500 (SPX), and in recent days the stock has jumped to several new records while the SPX is still fighting to get back to its October 2018 levels. Traders who have been running the LiveAction scan for stocks trading at 52-week highs have likely become well-acquainted with WCN the past couple of weeks.

So, while some traders may not consider waste management sexy, it’s hard to argue with performance. Here’s some food for thought: Since 2016 WCN stock has outperformed Amazon (AMZN), Apple (AAPL), Alphabet (GOOGL), Facebook (FB), and Microsoft (MSFT). (Netflix topped it, but like its fellow tech names, it’s still working to get back to its 2018 high.) That type of performance, as well as rallying while its industry falters,1 as WCN has done lately, will often get you noticed as a potential “momentum” stock—a catch-all phrase for anything that’s moving fast.

Momentum, as veteran traders know, ebbs and flows, and while hopping on a hot stock—buying it high and attempting to sell it higher—can sometimes pay off, many traders prefer to catch them during pauses and pullbacks. The rationale: If the underlying bull case is genuine, the uptrend will resume, and you’ll have gotten in at a better price. If you miss the trade because the stock just keeps rallying—well, that can happen, but it’s better than being stuck in a loser—and the market, after all, will still be there tomorrow.

On a longer-term horizon, some consensus analyst forecasts are pegging WCN in a tight range of $94-$962—around 14% higher than where the stock was trading yesterday. Of course, analysts can be flat-out wrong, and even if they’re right, a lot can happen on the way to a long-term price target.

Waste Connections (WCN), 4/5/18–2/7/19. Waste Connections (WCN) price chart. Record highs.

Source: Power E*TRADE


The chart above zeroes in on the past six months of WCN price action, and shows the late-January upsurge marked a breakout of both a short-term consolidation and the September high.

Yesterday the stock turned lower with the rest of the market, but only about a third as much as the SPX. If a larger pullback is, in fact, developing, some traders will likely be eyeing that breakout level (around $81) as a possible target, since prices often return to the vicinity of such conspicuous technical levels after high-momentum moves. WCN’s recent run certainly qualifies in that department.

Note: WCN is currently scheduled to release earnings on Wednesday, February 13.

Market Mover Update: The announcement of a merger between regional banks BB&T (BBT) and SunTrust Banks (STI) kept a bid under many bank stocks yesterday despite the broad-market downturn (see “Banking beyond the bigs”).

Today’s earnings include: Arconic (ARNC), Cboe Global Markets (CBOE), Hasbro (HAS), Immunogen (IMGN), PG&E (PCG), Phillips 66 (PSX), Radian Group (RDN), Ventas (VTR).

 

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1 Zacks. Are You Looking for a Top Momentum Pick? Why Waste Connections (WCN) is a Great Choice. 2/4/19.

2 TipRanks. Waste Connections (WCN) analyst estimates. 2/6/19.