Editor’s note: This column is part of our Best Stocks for 2015 contest. Mike Turner’s pick for the contest is Old Dominion Freight Line Inc. (ODFL).
Looking ahead to 2015, I think next year will be a continuation of the current bull market, with market gaining between 11% and 16%. I know that many investors are concerned that plunging oil prices will derail the market in the New Year, but I think dropping oil prices will be more a benefit than a detriment to the U.S. economy and stock market.
You see, any company or household that uses oil and gasoline, directly or indirectly, will see more discretionary money in their pockets. This should spur more spending, which should boost GDP and an expanding U.S. economy.
Because of this, many domestic companies will also notice an uptick in stock price, which is why my No. 1 stock pick for 2015 is Old Dominion Freight Line Inc. (ODFL).
ODFL is a less-than-truck-load motor carrier company, based in North America. The company provides regional and inter-regional LTL services in the U.S.
According to the Turner Analytics database, ODFL stock has very strong fundamentals and technicals. Old Dominion scores 82 out of 100 in Demand Fundamentals and 81 out 100 in Demand Technicals. In the past three years, ODFL stock has surged from $26 per share in January 2012 to almost $80 per share today.
ODFL also continues to be one of the best stocks fundamentally in the entire trucking industry. It has a P/E ratio close to the middle of the group, and its earnings growth is at the top end of its peer group. Last quarter brought quarter-over-quarter earnings growth of almost 30%, while year-over-year earnings growth is almost 23%.
Multi-year earnings growth is almost 72%, which is outstanding, and shows just how fast ODFL is growing.
ODFL Stock Will Continue Charging Forward
There are several factors that should keep the stock price moving higher in the foreseeable future:
First, as mentioned before, fuel costs are much lower than in the past. The rise in ODFL’s price over the past three years has been accomplished with crude oil in the $80 to $100-plus range. The current move into the low $60s will be a huge benefit for ODFL and other truckers. And should the price of crude oil rise, it will not have a great impact on its stock price, as Old Dominion will be able to pass along a fuel surcharge to their customers.
Second, capacity is constrained throughout the entire industry, which should lead to higher prices and higher utilization rates. There are two major reasons for this capacity constraint: The first is the growing shortage of truck drivers. Also, a slew of federal laws and federally mandated rules and regulations are expected over the next few years, which could create increased barriers to entry in the industry, thereby restricting new competition and keeping prices and profits high for existing firms.
And don’t discount the expansion of the U.S. economy. As the U.S. economy continues to expand, the entire industry is poised to take advantage of this slow and steady growth.
Finally, ODFL has committed to buying back $200 million of its outstanding stock over the next two years, which could act as a floor to any temporary downside move in its stock price.
For all of these reasons, it’s easy to see why ODFL is my entry for the Best Stocks of 2015 contest.
Mike Turner and his team of software engineers developed Turner Analytics, a sophisticated software system that creates time-cycle forecasting charts. He is also the editor of Signal Investor.
