Five Guru-style transportation picks
Many transportation companies have fared quite well despite the sluggish economy. Here are some that my Guru Strategies like.
Since the global economic meltdown of 2008 most investors haven't expected much from the economy, and that doesn't seem to be changing. For many if not most analysts and pundits, the best-case scenario for the U.S. involves "average" growth in coming years; more likely scenarios involve prolonged "tepid" growth; and downside scenarios involve complete and utter financial disaster.
Given all of the economic concerns, you might not expect the transportation sector -- which tends to move in step with the broader economy -- to be a place to find good investments. But the economy has done a bit better than expected since the recession ended in mid-2009, and many transportation companies have fared quite well. In fact, the Railroad and Trucking industries are number one and number two on my Validea Growth Index, which ranks industries based on the growth characteristics of the companies within them.
And, while these industries have been producing some strong growth in recent years, the talk of economic doom and gloom has kept many of their valuations at very reasonable levels. Investors have begun to warm to them, with railroad stocks up about 15% so far in 2013, and trucking stocks up more than 18%, according to Morningstar.com. My Guru Strategies, each of which is based on the approach of a different investing great, are finding a number of transportation stocks that look like they still have a lot more room to run. Here are a handful that are near the top of the list. As with any quantitative screening approach, you should invest in stocks like these within the context of a well diversified portfolio to limit stock-specific risk.
C.H. Robinson Worldwide (CHRW): Robinson ($9 billion market cap) is a worldwide third-party logistics and freight company, meaning that it doesn't own the transportation equipment it uses. It instead works with close to 50,000 transportation companies around the globe to provide truck, rail, air, and ocean freight services.
The Minnesota-based company is a favorite of my Warren Buffett-based model. A few reasons: It has upped EPS in each year of the past decade; has no long-term debt and it has averaged a 29.7% return on equity over the past ten years.
Union Pacific Corporation (UNP): This Nebraska-based company is the parent of Union Pacific Railroad, which operates in 23 states in the western two-thirds of the U.S. Its lines connect with Canada's rail systems and the firm is the only railroad serving all six major Mexico gateways.
Union Pacific ($66 billion market cap) gets strong interest from my Peter Lynch-based model. Lynch famously used the P/E-to-Growth ratio to find bargain-priced growth stocks, and when we divide Union Pacific's 17.2 price/earnings ratio by its 22% long-term growth rate (I use an average of the three-, four-, and five-year earnings per share growth rates to determine a long-term rate), we get a P/E/G of 0.79. That comes in under this model's 1.0 upper limit, a good sign.
Lynch also liked conservatively financed firms, and the model I base on his writings targets companies with debt/equity ratios less than 80%. UNP's 45% D/E is thus another good sign.
J.B. Hunt Transport Services (JBHT): Arkansas-based Hunt ($8.2 billion market cap) is a transportation logistics company active in the continental U.S., Canada, and Mexico. Its offerings include transportation of full truckload, containerizable freight, It also has arrangements with many North American rail carriers to transport truckload freight in containers and trailers.
Hunt's earnings have increased in all but one year of the past decade; it has enough annual earnings ($311 million) that it could pay off its debt ($585 million) in less than two years if it needed to; and it has averaged a 28.3% ROE over the past decade. All of that earns it high marks from my Buffett-based model.
Kansas City Southern (KSU): This Kansas City-based rail firm is a holding company that has railroad investments in the U.S., Mexico and Panama. In the U.S., its main holding is the Kansas City Southern Railway Company; its primary international holdings include Kansas City Southern de Mexico, S.A. de C.V. and a 50% interest in Panama Canal Railway Company.
Kansas City Southern ($11.4 billion market cap) is another favorite of my Lynch-based model. While its shares may look pricey, trading for 30.3 times trailing 12-month earnings, the firm has been producing the kind of growth that justifies that valuation. It has grown the EPS at a 37.2% rate over the long haul, making for a solid 0.81 P/E-to-Growth ratio. In addition, the firm has reasonable debt, with a debt/equity ratio of 52%.
Saia, Inc. (SAIA): This Georgia-based transportation company offers a range of less-than-truckload, non-asset truckload, and logistic services. It operates 147 terminals in 34 states, and has 8,000 employees across the U.S.
Saia ($575 million market cap) has taken in more than $1 billion in sales over the past year. It gets strong interest from my James O'Shaughnessy-based strategy. The model looks for firms that have upped earnings per share in each year of the past five-year period, which Saia has done. The model also looks for a key combination of variables: a high relative strength, which is a sign the market is embracing the stock, and a low price/sales ratio, which is a sign it hasn't gotten too pricey. Saia has a red hot 12-month relative strength of 94, but its P/S ratio remains a bargain-priced 0.54, so it passes with flying colors.
I'm long CHRW and SAIA.
John Reese is the founder and CEO of Validea Capital Management and Validea.com and the author of The Guru Investor: How to Beat the Market Using History's Best Investment Strategies.
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The Fed may start tapering in just a few months. Here are a few of the likely winners and losers.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.