Trucking
That computer you are looking at, that desk it is laying on, that chair you're sitting in, and those clothes you are wearing were placed on a truck and shipped to where you bought it from. Oh, and all the resources it took to make it's parts were shipped to a factory to be made then shipped to another factory to be assembled even before it was shipped to where you bought it from. Think of how many different points of shipping there are for everything that you used today...yeah, it's a lot.
Trucking is one of the biggest industries in the U.S., and is estimated to be worth about
$700 billion a year (4% of the United States' GDP) and creates about $39 billion in highway and diesel taxes which help maintain our nations infrastructure. The industry employs about 7.1 million people with 3.4 million actually being truck drivers. All those employees are employed by 1.2 million companies and roughly 90% of them operate with 6 or less trucks.
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| One of Old Dominion's 222 service locations |
How do you invest in this $700 billion dollar industry? There are several ways, trucking companies, logistics companies, and the companies that make those trucks or the parts for them. Trucking companies have the poorest margins out of the three but make up the majority of the industry's revenue, the poor margins are due to the expenses of fuel regardless of the current cost of oil. But a few companies are good at making the best out of this scenario, one of the best being Old Dominion Freight Line (NASDAQ: ODFL).
Old Dominion is one of the stand outs among all the other public trucking companies. In a sector that struggles to have high single digit margins it has advanced it's margins into the double digit territory with a Q3 15' margin of 10.82%. Old Dominion's closest competitor is Knight Transportation (NYSE: KNX) with a 10.24% margin, but Knight has half the revenue showing Old Dominion's ability to be a larger company while keeping margins higher. One may argue that Knight does pay a dividend which may make it more attractive but it is a mere 1% payout. I would rather see a company use that money to try and capture a larger percentage of the market share, especially since ODFL only owns about .39% of the shipping market. Old Dominion has a positive future because our economy is based on consuming, the more consuming, the more shipping, the more business for trucking and hopefully Old Dominion. Old Dominion is slightly over valued with a P/E of 16. I would recommend waiting until it becomes fair or undervalued to start a position with Old Dominion.
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| U-Haul's Various Rental Options |
Our next company is a bit of an out-liar in the trucking world,
Amerco (NASDAQ: UHAL) is the parent company of U-Haul self storage and moving trucking rentals. They are also somewhat of a cheater in this sector because they also own Amerco Real Estate Company (commercial real estate), Repwest Insurance (insurance for U-Haul customers), and Oxford Life Insurance. This company has taken the two biggest cost factors in shipping, fuel and employees, out of it's business model. With those costs gone they can now reap much larger margins than other trucking companies, they had a Q3 15' margin of over 19%. While one would think the insurance and real estate business helps with this, it does, but Self Moving rentals amounted to about 70% of total sales. In past studies the average american moves about
11 times, given this statistic and an increasing population, Amerco has a positive future. And if for some reason moving starts to decrease there are additional revenue streams that can help offset lower moving rates. Amerco is also slightly over valued and someone looking to start a position in this company could benefit from waiting for a better value to enter into a position.
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| Cummins' Global Footprint |
The company that powers a large part of the trucking industry is Cummins (NYSE: CMI). If you look into it, right away there is a glaring problem, a slowing global market has negatively impacted the revenue of Cummins. While North American segments are growing (4%) all other global
segments besides India are decreasing (-18%), fortunately for Cummins they are heavily weighted towards the North American segment (60%). They have also taken action to help offset their loss of revenue in foreign markets, specifically, laying off 2,000 of their workers. Currently Cummins has lost over 45% of it's share value and has a P/E of 9.1. They also have quite a solid financial status, small amount of debt, plenty of cash to continue paying dividends of 4.58% and a new $1 billion share repurchase plan. Global markets will not always be in a slump and Cummins engines and products are not going out of style. With a long term positive industry outlook, good financial status, and great value Cummins presents itself as an addition to your portfolio.
With several options to choose from you are presented with "which company has the best long term capability for return?" I believe the cheater wins in this battle, while U-Haul isn't your typical trucking company they have flourished in the world of moving "stuff" from one spot to the other. Their business model is not going anywhere soon and as long as the population increases and people continue to move throughout their life they will continue to profit.
