XPO Logistics Inc (NYSE:XPO) is a logistics company that is on a serious roll. Logistics firms cover a broad range of businesses, from shipping to trucking to last mile delivery, to intermodal, rail, etc.
But one thing that brings them all together is a simple reality Charles Dow noted more than a century ago. When an economy is growing, you can see it first in the transport stocks.
His point was twofold. If you look at the transports and the industrials stocks they give you a good idea of where the economy is heading. A few of his colleagues got together after Dow’s death and built his observations into a formal investing system called, unsurprisingly, Dow Theory.
There are six main tenants of the theory, and right now, No. 4 is especially clear: Indexes must confirm each other.
Basically, that means the industrials (DJIA) must confirm the transports (DJTA). If the industrials were doing well — customers were buying goods — then the transports would be doing well, since they were necessary to get the goods to market.
Back in the day, the transports were basically the train and shipping companies. Today, that has taken on a much broader meaning as technology has entered the picture. Now, there are transport companies that simply manage logistics rather than run fleets of vehicles.
XPO is very much an example of a modern logistics company. About 60% of its revenue is derived from its transportation side of the business — getting goods from point A to point B. The other 40% comes from logistics — scheduling goods from say, a Chinese factory to a retail store in Peoria, Illinois.
About 60% of XPO’s revenue is generated from U.S. business, with France and U.K. taking the No. 2 and No. 3 spots, respectively. But XPO operates in 32 countries with 1,455 locations.
XPO stock is up a very impressive 113% in the past 12 months. And while the DJIA has been hit hard recently, DJTA has avoided triggering a Dow Theory sell signal. Also bear in mind that the two averages have a lot of different companies than they used to, so while they’re the best indicators of Dow Theory, they aren’t what they used to be.
Obviously the new corporate tax reform has been beneficial in the first quarter of 2018. But what is most bullish for XPO right now is two significant macro trends — the expanding global economy and the rise in online retail.
You won’t see an XPO label on any box you get from Amazon.com, Inc. (NASDAQ:AMZN) or Target Corporation (NYSE:TGT) or Walmart Inc (NYSE:WMT). XPO’s business is setting up deliveries, but it doesn’t necessarily deliver the goods; that is left to contractors.
That’s one of the best aspects of XPO, since it has a relatively small fleet it isn’t as exposed to oil prices, maintenance costs or other capex issues. It relies on its logistics technology — the company has over 1,700 tech professionals and over 100 data scientists — to keep the goods flowing. That means better margins for the 160,000 ground shipments and 7 billion inventory units it manages each day.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
