Glass Half Full, or Glass Half Empty?
A Quiz For You
A Stock That's Near Its New Highs
One of the truisms of business is that a company’s values reflect the values of the person at the top.
For Steve Jobs of Apple, style was a key factor in developing products.
For Jeff Bezos of Amazon.com, convenience was key to success.
And for John Mackey of Whole Foods Markets, social responsibility has been a powerful component of the firm’s success.
Those are big businesses, of course, but the principle holds for small ones, too—including Cabot.
My father founded this company because he wanted to help people become better growth investors, and he stayed true to that mission his whole life.
In the decade I’ve been in charge, I’ve continued his legacy (by having Mike Cintolo ably lead the growth division) while broadening our mission to include investment advisories on a variety of successful investing styles.
But there is one characteristic that both my father and I have had in spades, and that is optimism! Optimism is a key trait of growth-oriented investors looking to invest in high-potential growth stocks.
Optimism says, “Yes, the P/E ratio is high, but that’s because there’s great growth ahead.”
Optimism says, “I understand that there are problems, but I believe solutions will be found.”
Optimism says, “The long-term trend is up, and therefore it is likely to remain up.”
But not everyone agrees with this optimistic attitude and that’s great. That’s what makes markets. And I bring this up today for two reasons.
One: To give you a taste of the pessimistic side.
Two: To ask you to take a little quiz.
So first, here’s what the pessimist might say today:
• The bull market has been running for six years, so it is quite long in the tooth.
• P/E ratios are high, which tells us there’s little upside left for the market.
• Investor sentiment is high, which eventually leads to trouble.
• And interest rates are likely to rise soon, because employment trends are strong, and everyone knows that when rates rise, the stock market suffers.
Furthermore, on the fundamental side, the pessimist might even note:
• Government debt is at record levels and the clowns in Washington, who are no longer working together, have no will to fix the problem.
• Which means that eventually inflation will spiral out of control, the value of the dollar will plummet and our whole financial system will fall apart …
• …leaving gold and other precious metals as the strongest assets.
The most pessimistic of all might even say that Russia or North Korea or ISIS or Iran will eventually do something so terrible that the only smart investment today is a bomb shelter and a 10-year supply of food and medicine!
I hope you don’t believe that last one.
But I do want to know what you believe, all in the interest of serving you better, so I’ve made a little quiz for you.
It won’t take long and I’ll share the results next week! You can take the quiz here.
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Moving on to the current market, trends are still up and I think there’s room for investor perception to improve further, and thus I remain bullish.
So what stocks are interesting?
Ideally, stocks at or near new highs that are enjoying improved perceptions by both individual and institutional investors. One worth looking at is XPO Logistics.
XPO Logistics (XPO)
XPO’s headquarters are in Greenwich, Connecticut, home to many Wall Street investment wizards. These wizards, for the most part, don’t make anything. But they do deals very well, and that’s the story behind XPO.
In brief, the wizards behind XPO have spent the past few years acquiring companies in the highly fragmented transportation logistics industry, and consolidating operations to gain efficiencies.
As a result, today XPO is not only one of the fastest growing providers of transportation logistics services in North America, it’s also the third largest freight brokerage firm, the third largest provider of intermodal services, the largest provider of last mile logistics for heavy goods and the largest manager of expedited shipments.
To be clear, the company doesn’t own any trucks or employ any drivers; it contracts out those services in order to stay nimble. But it does have 197 locations and approximately 10,000 employees, and as of year-end2014, the company was facilitating more than 37,000 deliveries a day throughout the U.S., Mexico and Canada
That’s a drop in the bucket compared to UPS, which ships roughly a million packages and documents per day. But XPO is growing much faster, and investors are taking notice. A year ago, the stock had 161 institutional owners. Now it has 283.
And it’s likely to have far more once it actually turns profitable!
You see, all this investment has cost money, and so XPO hasn’t had a profitable year since 2010. But it has plenty of cash (approximately $1.1 billion) and it has a successful (so far) game plan.
Fourth-quarter results, released February 18, saw revenues mushroom 223% from the year before, to $831 million. Organic growth accounted for 39% of the increase, which is very impressive, while acquisitions accounted for the rest.
Looking ahead, the company expects to lose money for a while longer. But in 2017, it expects revenue of approximately $9.0 billion and EBITDA of approximately $575 million. (And where do you think the stock will be then?)
At the moment, XPO is in a long-term uptrend. Since the February 18 earnings report, the stock has surged from 42 to 46—and, impressively, held those gains while most stocks have pulled back.
If you like buying leading stocks, and you’re comfortable assuming the risk that comes from buying stocks at new highs, feel free to take a position here.
But what I really recommend is that you become a regular reader of Cabot Market Letter, which originally profiled the stock, and is your best source for similar great growth stories.
Yours in pursuit of wisdom and wealth,
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory