10 Standout Logistics and Supply-Chain Stock Picks

As consumers gain first-hand experience with supply disruptions -- including product delays, inventory limitations and even sometimes empty shelves -- the relatively prosaic topics of supply-chain management and logistics take on new, real-world relevance. Here are 10 ways to play these trends from leading investment experts and contributors to MoneyShow.com. Adam Johnson, Bullseye Brief Freight logistics has become a massive business and a key determinant of growth as the economy pivots to e-commerce, just-in-time inventory management and supply-chain reshoring. On the surface, logistics looks an exercise in getting products from one place to another. Go deeper and it's a complex ballet incorporating artificial intelligence to route products faster, more reliably and at lower cost. Several operators dominate the market, but one stands out. XPO Logistics, Inc. is an exceptional transportation and logistics company, ranking as the second largest truck broker in the world and the third largest less-than-truckload (LTL) operator in North America. The company has just announced plans to spin off the freight brokerage business. The brokerage division currently represents two-thirds of revenue. Its strength comes from a unique mobile platform called XPO Connect, which matches shippers and truckers in the same way Uber connects riders and drivers. XPO Connect can be managed from a cellphone. Meanwhile, XPO's less-than-truckload shipping service currently represents one-third of revenue. The division enables 50k customers to more effectively manage inventory by moving palletized freight across a network of 771 facilities serving 99% of all zip codes in North America. The company has significantly beaten earnings estimates for 12 consecutive quarters and recently raised earnings guidance for 2022. Strong results reflect accelerating fundamentals around recovery and e-commerce, as well as company-specific initiatives to improve operating metrics and expand the business. Although we don't yet know the final terms of the just-announced spinoff of the freight brokerage business, I believe this split will unlock tremendous value by allowing investors to evaluate and price each unit on its own merit. Tony Daltorio, Market Mavens Perhaps no sector is thought to be as boring as logistics. Yet, in today's post-pandemic world, logistics is now one of the most exciting sectors for investors. That's why I'm bringing to your attention the world's largest pure-play contract logistics provider, GXO Logistics , which was spun off last August from XPO Logistics . GXO owns about 900 warehouses in 25 countries. And before you think the spinoff is just a company that owns warehouses, I want to let you in on a little secret: GXO is a technology company, too. Let me fill you in on the massive three-pronged opportunity for growth that lies ahead for the company. First, there is e-commerce. Globally, e-commerce penetration of overall sales is only about 20%. Obviously, that leaves a lot of room for expansion. Next, we have outsourcing. Only about 30% of logistics operations are outsourced to firms like GXO. But with the all the problems in the global supply chain over the past two years, we'll see a lot more company outsourcing logistics. Finally, there is factory automation. Warehouse automation penetration is a mere 5%. That leaves a lot of territory for GXO to fill with its warehouse automation technology. GXO's technology runs the gamut from automated storage and retrieval systems to emerging technologies such as mobile goods-to-person robotics, collaborative robotics, and three-dimensional robotic storage solutions. As the world's largest contract logistics provider, GXO is benefiting from scale and its ability to serve multinational corporations that need a logistics partner that can offer high-tech automated solutions. The company has a mere 5% of the outsourced logistics market, even though it is the world's largest pure-play contract logistics provider. And keep in mind that outsourcing is growing. Currently, it accounts for just a third of the $430 billion market for logistics in Europe and North America, according to Jefferies. Bottom line: There is lots of growth ahead for GXO, which has not yet been priced by Wall Street. GXO Logistics stock is a buy at any price in the $80s. Mark Skousen, Home Run Trader In my opinion, FedEx is a great company selling at a bargain price. Based in Memphis, Tennessee, FedEx is one of the world's leading transportation companies and employs more than 570,000 team members worldwide. The firm offers transportation solutions, e-commerce services and other business, supply-chain and logistics services in more than 220 countries. It handles over 15 million shipments each day. This is a company with a sterling reputation. It is consistently ranked among the world's most admired and trusted companies. Fortune magazine declared FedEx one of the 100 Best Places to Work and Forbes named it one of the World's Most Valuable Brands. FedEx generates over $89.5 billion in annual sales. And revenue is growing by 14% year over year. However, the stock is well off its 52-week high of $320, even though earnings beat the Wall Street consensus by 13% in the most recent quarter. Why is the stock down? Like many companies, FedEx has struggled with labor challenges in recent months, although those will ease as the pandemic wanes. A bigger challenge, according to some analysts, is the fact that even though FedEx provided critical services during the pandemic, the reopening of the economy in the United States and abroad will reduce the demand for its services. I think that this analysis is wrong. People are not going to give up buying online just because the pandemic is over. E-commerce will continue to grow for many years to come. That means there will also be a growth in the number of packages to deliver. And here's a personal insight. I've had several FedEx packages delayed over the last two months. Each time I inquired about them -- since the company has a good reputation for on-time delivery -- I got the same explanation. The company is experiencing record shipments. But, if the company is seeing record volume, that only makes the stock appear more undervalued recently trading at just 12 times trailing earnings and only nine times prospective earnings for the next 12 months. I believe the stock is an excellent buy at these levels -- and ripe for a rebound. Steve Reitmeister, Reitmeister's Total Return ArcBest -- which is involved in freight shipping and logistics -- is a very top-down kind of selection. The economy is looking good. That is always good for transportation (like trucking which is an A-rated industry). And ARCB is one of the best-looking firms in the group. Their most recent earnings report continued to remind folks of the operational excellence taking place at the firm. This 25% beat led to strong earnings estimate revisions for both this year and next. Yet the shares recently traded for only 9 times this year's earnings estimates. That explains why the average target is $132 with two analysts thinking $145 is more like on the money. That provides a pretty good reason to get onboard now around $90. On the POWR Ratings front, we have a top-rated sector. The B rating overall may seem tepid, but the A for Growth & Momentum is a solid statement of its continued attractiveness going forward. Michael Brush, Brush Up on Stocks Harte Hanks is not a retailer, but it is in the ballpark. It offers customer care, fulfillment and logistics, and marketing services. It has transformed from a direct mail company. This means it is more of an asset light business because it has gotten out of its distribution centers. This improves profitability. Customers include Bank of America, GlaxoSmithKline, Unilever, Pfizer, HBOMax, Volvo, Ford, FedEx, Blue Cross/Blue Shield, Sony, and IBM. The company seems to be hitting its stride. Fourth-quarter sales grew by 10% to $52 million. It posted net income of $1.8 million, compared to $1 million in the same period in the prior year. Revenue for the full year also grew by 10% to $194.6 million. The benefits of our new, asset-lite operating model have been validated by our results with a $17.7 million revenue increase for the year, said CEO Brian Linscott. The financial results for both the quarter and full-year clearly demonstrate the substantially improved earnings power of Harte Hanks. We enter 2022 a stronger company with sustainable profitability growth, sufficient liquidity, and a loyal customer base. Linscott and another insider recently bought $304K worth of stock. This supports the bullish case for the issue since they both have good buying records. They purchased up to $6.55. I suggest considering purchases here, even above that level. Kelly Green, Weiss Ratings Daily If a company is solid, then a dip in the share price can mean the opportunity to buy at a discount. As such, I did a very general screen and entered one single filter: I simply wanted to know the stocks that had seen a ratings upgrade. This would indicate an investment opportunity, especially if the company can continue in that direction. One that stood out is USA Truck , one of the nation's largest over-the-road carrier and logistics services. The company was established in 1983 as Crawford Produce with fewer than 10 tractors and now has more than 2,000 driving team members. Inflation in transportation costs -- currently at 21.4% -- are the fourth highest of any sector. Although the stock was a solid buy before March 2016, it has spent its time in the Hold and Sell ranges since. Until just recently; at the end of December, it popped up to a B- ... only to be downgraded again in January. Now we are wondering if it will be able to hold onto its momentum this time. The shares have recently undergone a correction and this could be a buying opportunity. Rich Moroney, Upside A leading distributor and provider of supply-chain and logistics solutions, WESCO International is a timely pick amid ongoing global bottlenecks. In the December quarter, per-share earnings surged 160% to $3.17, sailing past the consensus of $2.55. Revenue advanced 17.5%. Organic sales growth was a healthy 15.8%. Helped by higher prices, gross profit margin increased more than a percentage point to 20.8%. WESCO seems well positioned to meet accelerating demand while global supply chains are rebuilt in the year ahead. Market-share gains and cost savings should help lift sales and profit margins. For full-year 2022, management targets sales growth of 5% to 8% and per-share earnings of $11.00 to $12.00. The consensus of $11.64 implies 17% growth, and analysts project 15% growth in 2023. Trading at less than 11 times estimated earnings, WESCO is a Best Buy. Stephen Biggar, Argus Research In our view, J.B. Hunt has successfully adapted to changes in customer demand for shipping and freight services. Over the last decade, it has pivoted to an asset-light model, reducing its traditional long-haul truck fleet and shifting to faster-growing logistics and final-mile services, as well as to intermodal, 'truck-to-rail' transport, and higher-margin dedicated contract services. Looking ahead, we expect challenging market conditions -- including rising labor costs -- to persist for the next two or three quarters. However, as the economy recovers from the pandemic, we expect U.S. companies will focus on strengthening their domestic supply chains. The recently passed bipartisan infrastructure-spending plan also holds promise. As such, we believe that financially strong JBHT is in an enviable position. Our 12-month target price is $225. Mike Cintolo, Cabot Top Ten Trader Matson has been around forever; founded in 1882, the firm is a niche ocean transport and logistics player, shipping goods in the Pacific, including between China and the West Coast; Hawaii is a big market and it does business to Alaska, Guam and some other smaller countries, too. Matson is a nice, well-run operation, with profits in the black for years even during some dry times, but the big story today is much more about macro factors -- first, e-commerce demand is booming while consumer demand in general is up post-pandemic as inventories are busy being restocked. Throw in the well-known port congestion and supply-chain issues, and a decent logistics operation, and Matson's numbers are going through the roof. In Q4, sales boomed more than 80% with earnings reaching nearly $10 per share. Best of all, management believes that the underlying bullish industry factors should remain in place for much of this year. Of course, when the industry's conditions change, Matson's earnings will pull in, but investors are starting to think the bottom line will stay higher for longer than most expect -- even in 2023, analysts still see north of $10 of earnings. MATX spent most of last year effectively chopping around. But now the buyers are back, with two recent big-volume accumulation weeks even as the market has been hectic. It's a bit thinly traded, so we advise aiming for dips if you want in. Ben Reynolds, Top 10 REITs Industrial Logistics Properties is a REIT that owns and leases industrial and logistics properties throughout the United States. The trust's portfolio consists of nearly 300 properties that collectively have about 36 million rentable square feet. The majority of its portfolio is in Hawaii and about half of its total revenue comes from that state. Last November, Industrial Logistics agreed to acquire Monmouth Real Estate for ~$2.1 billion in cash. As this amount exceeds the current market cap ($1.45 billion) of Industrial Logistics, the deal is transformative for the REIT. The deal, which is expected to close in H1-2022, will offer Industrial Logistics 126 e-commerce focused industrial properties across 32 states and will be immediately accretive to FFO per share. Due to the size of the deal, the stock's price has dropped 20% since the announcement. Industrial Logistics is resilient to recessions thanks to its long lease terms, strong tenants, and exposure to e-commerce. This was confirmed during the pandemic, when the trust grew its FFO per share 6% and defended its dividend. Overall, we expect the REIT to grow its FFO per share by 3% per year on average over the next five years. Given this forecasted annual growth of FFO per share and the 6.0% current dividend yield, we expect 9.6% in total annual returns over the next five years.

10 Standout Logistics and Supply-Chain Stock Picks

Once considered boring, supply chains and logistics has become one of the most talked-about sectors in the market.

Columnist Conversation

An Interesting Chart

This Weekend on Real Money

Stocks Under $10 Portfolio

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.