Since I'm a contributor for fool.com, friends and family often decide to do me a favor and give me a hot tip. They say: "Have you heard about [the latest headline-grabbing thing]? You should look into it because it's going to be big."
Many investors are looking to find the next big thing with their investments, and it's possible to make a lot of money that way. But strong returns are found in mature businesses as well. And whereas very few "next-big-thing" stocks actually work out, mature businesses give investors a much higher probability of success.
Two such mature businesses are United Rentals(NYSE: URI) and Waste Management(NYSE: WM). They specialize in equipment rentals and garbage disposal, respectively. Investors yawn at these boring businesses. But both are outpacing the returns of the S&P 500 by a wide margin over the last 10 years.
URI Total Return Level data by YCharts
Moreover, both United Rentals and Waste Management just reported quarterly financial results, showing once again that these are unstoppable businesses for the long haul.
1. United Rentals
With more than 1,500 locations in North America, United Rentals is the market-share leader for equipment rentals with 15% of the market. The company has a fleet of equipment valued at $21 billion as of March. And by managing this fleet well with both rentals and sales when appropriate, it's become a free cash flow machine.
On April 24, United Rentals reported financial results for the first quarter of 2024. It generated free cash flow of $869 million during the quarter. This puts it on track to generate $2.1 billion for the year. If it hits its full-year goal, the company will have earned over $10 billion in free cash flow in just five years. Not bad for a company with a market cap of $46 billion as of this writing.
United Rentals doesn't idly sit on its cash. It buys other businesses to increase its market share. Most recently, in March, it acquired Yak Access (a company that facilitates access in right of ways) for $1.1 billion in cash. Management also habitually buys back stock, which partly explains why its earnings per share are reaching record highs.
URI Average Diluted Shares Outstanding (Quarterly) data by YCharts
In 2024, United Rentals' management hopes to generate around $15 billion in revenue. But in 2028, it hopes to generate $20 billion in revenue. Therefore, there's still upside for investors who buy shares of this unstoppable business today.
2. Waste Management
Like United Rentals, Waste Management reported financial results for the first quarter of 2024 on April 24. And as is usually the case, revenue is up for the company and profits are hitting new records.
Waste Management has competitive advantages. It operates various landfills and recycling plants, which require permitting and are costly to get started. It also has an incredibly high customer retention rate, since trash removal and recycling are services that are constantly needed.
Waste Management already generates plenty of free cash flow -- it expects at least $2 billion in 2024 alone. But the company's free cash flow isn't quite where it could be because it's been spending heavily on a project that harvests gas from its landfills and converts it into usable fuel.
The cost to invest in this project is already going down for Waste Management and is expected to unlock higher profitability in coming years. In Q1, the company finished one of its landfill-to-natural-gas projects and expects to commission four more facilities this year. These facilities add to the company's profits by harvesting something it already has just sitting in its landfills.
Waste Management uses much of its profits to give back to shareholders. The company had $714 million in Q1 free cash flow. In comparison, it returned $557 million to shareholders through dividends and stock buybacks. This shows that management is intent on rewarding shareholders.
A closing caveat
I believe that both United Rentals and Waste Management are top dogs with competitive advantages that will make their businesses unstoppable for years to come. That said, I wouldn't say that either stock is necessarily a good deal right now.
URI Price to Free Cash Flow data by YCharts
From a free-cash-flow perspective, Waste Management stock is clearly trading at an above-average price. For its part, the chart makes it look like United Rentals is trading at a relative bargain. But the average is thrown off by a couple of anomalies. United Rentals stock often trades at half of its current valuation.
United Rentals and Waste Management are great businesses -- and, consequently, great stocks to buy and hold for the long term. However, neither is a timely opportunity. So it's likely best to buy shares gradually over time, because prices could pull back to more normal valuations at some point.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.
