After the market closes today, FedEx (FDX) will release results for what is, somewhat unintuitively, their second quarter of 2017. Even though there are some doubts this time around, the company has a strong history of expectations beats, and, as was the case last quarter, the stock often responds positively even after a miss.
That is why, rumors or not, I like the stock going into earnings, but what the release does more than anything is create an opportunity to reiterate some advice I gave six months ago: Buy logistics stocks for the long term.
In that article I pointed to FedEx, their rival UPS (UPS), and JB Hunt Transport (JBHT) as potential ways to play the sectors. Six-month gains of 31% (JB Hunt), 19% (FedEx) and 11% (UPS) for an average of just over 20%, or around double the return on the S&P 500 in the same time, would suggest that that was not a bad idea.
You could also add in something like Old Dominion Freight Line (ODFL: + 51% YTD), but the important thing is that, even if you missed out then, it doesn’t mean that it is too late now. Technology and consumer behavior are both trending in ways that make those gains just the beginning, so buying in even at these lofty-looking levels is still smart for long-term investors.
The technological change that benefits trucking and delivery businesses has been widely reported, but in my experience most people that I ask about it focus on the potential negatives rather than looking for opportunities. Autonomous, electric-powered trucks are the future, but most people, when asked about something like the Tesla truck, will respond with something positive about TSLA and a dire warning about job losses among drivers.
Both of those are valid points, but they ignore the biggest beneficiary of all: trucking companies. They are looking at a future where two of their major costs, fuel and drivers, will be dramatically lower, and in the case of drivers, possibly even eliminated altogether.
In a competitive industry, some of those lower costs will no doubt be passed on to their customers, but if you believe that they will all trickle down to the consumer you haven’t been paying attention to the last couple of centuries of corporate history, and I have a bridge for sale that you might be interested in.
Margins are therefore set to increase in the trucking business, but so are sales. At this time every year we see further growth in e-commerce as a percentage of holiday shopping, and so far, 2017 is no exception. Online sales in the five days around Black Friday and Cyber Monday were close to $20 billion this year, another record high, and all that stuff has to be delivered.
Certainly, a lot of the big boys like Amazon (AMZN) and Walmart (WMT) have their own delivery networks, but business for trucking firms also benefits massively as the change in consumer behavior gathers pace.
Given those two things, much lower costs and surging sales, investing in trucking and logistics companies like FDX, UPS, ODFL and JBHT now, before yet another set of impressive numbers for online purchases are released after Christmas, would be a smart thing to do. The more cautious among you might wish to wait until after FedEx’s release this afternoon given the negative whispers, and look to buy on any pullback that follows.
That makes sense; a dip would add value and increase the chances of a good short-term gain to get things going, but if FDX does issue another beat it will simply be confirmation that things are going their way. In that case, any lost opportunity from waiting will be dwarfed by the long-term gains.
Whether you play it fast or slow, though, recognizing and acting on fundamental changes in market conditions is the key to success in long-term investing, and just such a change is happening in trucking. If you are kicking yourself for not listening six moths ago, listen now: buy trucking and logistics stocks and hold them.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.