Why look at logistics stocks for your investment portfolio? The pandemic has taught us to care about supply chain issues which are directly associated with the how and when products are delivered at each step in the production process. The final step is into consumers’ hands.
The logistics industry remains critical to global economies. Companies part of this sector are vital to transport a wide variety of products. However, the logistics space can be a challenging one for investors as the profitability and revenue of companies operating here are tied to the health of the overall economy.
The logistics vertical is part of the broader transportation sector which is a key facilitator of trade and commerce, making it an important cog of the macroeconomic wheel. These companies look to leverage their expertise and supply chain networks and ensure goods are moved across borders efficiently.
The explosion of e-commerce entities in the past decade has acted as a massive tailwind for logistics companies allowing players to widen their suite of services over time and meet surging demand. Here, we take a look at the top logistics stocks that Canadians can buy in 2022.
A company valued at a market cap of $2.88 billion, Cargojet (CJT:TSX) provides overnight air cargo services. The air cargo business includes services between 14 North American cities. It also operates international routes between cargo customers in regions such as the U.S. and Bermuda as well as between Canada and Germany. It provides dedicated aircraft to customers on an ACMI (aircraft, crew, maintenance, and insurance) basis.
Cargojet has increased investor wealth multifold and is up 2,500% in the last 10 years. Despite its massive gains, Cargojet stock is also down 32% from all-time highs, allowing investors to buy the dip.
Cargojet has increased sales from $455 million in 2018 to $668 million in 2020. Analysts tracking the stock expect revenue to touch $728 million in 2021 and $809 million in 2022. Its adjusted earnings are also expected to increase from $5.14 per share in 2021 to $6.14 per share in 2022.
As ocean and ground transportation supply chains remained clogged all around the world, it created opportunities for air cargo companies. This allowed Cargojet to increase sales to $189.5 million in Q3 of 2021 compared to $162.3 million in the year-ago period.
Cargojet stock is valued at a forward price to 2022 sales multiple of just over 3x and a price to earnings ratio of 26.6x which is quite reasonable, making it the perfect contrarian bet right now.
Bay Street has a 12-month average price target of $250 for CJT stock which is 55% above its current trading price.
TFI International (TFII:TSX)(TFI:NYSE) is a company that provides logistics and transportation in major North American markets. It operates through several business segments that include Package and Courier, Less-Than-Truckload, Logistics, and Truckload. The company ended 2020 with 7,867 tractors, 25,520 trailers, and 9,026 independent contractors.
TFI International is valued at a market cap of $13 billion and the company is forecast to increase sales from $3.78 billion in 2020 to $8.58 billion in 2021 and $10.31 billion in 2022, making it one of the top growth stocks on the TSX.
Its bottom-line is also expected to expand from $3.3 per share in 2020 to $7.35 per share in 2021. Shares of TFI International have returned 1,200% in the last 10 years, after adjusting for dividends.
In Q3 of 2021, TFI sales more than doubled to $2.1 billion on the back of mergers and acquisitions undertaken by the company. Further, organic growth was driven by a rebound in freight volumes and TFI’s strong positioning that allowed it to benefit from strong demand across verticals such as e-commerce and business-to-business.
TFI reported an operating income of $193 million which was 65% higher compared to the year-ago period while adjusted earnings rose by 55% to $1.46 per share.
TFI stock is valued at a forward price to sales multiple of 1.3x and a price to earnings multiple of 19x which is extremely reasonable.
Descartes Systems Group
The Descartes Systems Group (DSG:TSX)(DSGS:NASDAQ) provides cloud-based logistics and supply chain management business process solutions. The tech company aims to enhance the productivity, performance, and security of logistics-intensive businesses worldwide. Its logistics platform offers a range of cloud-based and interoperable web and wireless logistics management applications.
The company services clients across sectors that include manufacturing, retail, logistics, e-commerce, transportation, and field service among others. It counts industry titans such as Delta Airlines, Coca-Cola, Home Depot, and FedEx as its customers.
In the first three quarters of fiscal 2022 which will end in January, Descartes System sales rose by 22% to $312.3 million. Services sales rose 23% to $279 million, accounting for 89% of total revenue. Its net income almost doubled to $67.1 million or $0.78 per share in this period.
Similar to most other tech companies, Descartes also benefits from high operating leverage which allows it to expand profit margins at a higher rate compared to sales. In the last nine months, Descartes also increased operating cash flow by 38% to $130.6 million.
Valued at a market cap of $8 billion, Descartes sales are forecast to touch $610 million in fiscal 2023 while earnings per share are estimated at $1.34. So, it’s valued at a forward price to sales multiple of 13x and a price to earnings multiple of 73x which is steep.
Analysts expect the stock to gain 10% in the next 12-months.
A real estate investment trust Granite REIT (GRT-UN:TSX) acquires, develops, owns, and manages logistics as well as industrial and warehouse properties in North America and Europe,
valued at a market cap of $6.81 billion.
Its sales have risen from $247.4 million in 2018 to $341 million in 2020. Comparatively, its operating income has risen from $187 million to $260 million in this period.
Its net operating income stood at $84.5 million in Q3, up from $76.5 million in the year-ago period. Comparatively, its funds from operations rose to $65.2 million in Q3 of 2021, up from $55.5 million.
The company recognized fair value gains on investment properties worth $432.2 million, allowing it to increase annualized distributions by 3.3% to $3.10 per unit, indicating a yield of 3%.
Another tech company that makes the list is Kinaxis (KXS:TSX) which is currently valued at a market cap of $4.7 billion. Kinaxis offers enterprises a cloud-based subscription platform to optimize supply chain operations.
Its RapidResponse is a cloud-based SaaS (software-as-a-service) platform that provides enterprises with solutions that include demand planning, supply planning, sales & operations planning and inventory management.
The company’s sales have risen from US$150.7 million in 2018 to US$224 million in 2020. Analysts expect sales to touch US$320 million in 2021 and US$405 million in 2022. Its adjusted earnings per share are also forecast to expand from US$1.1 in 2020 to US$1.82 in 2022, valuing the stock at a P/S multiple of over 7x and a P/E multiple of 70x which is steep.
Analysts tracking KXS stock have a 12-month average price target of $226 which is 30% above its current trading price.
A company valued at a market cap of US$70 billion, FedEx (FDX:NYSE) is an absolute giant in the logistics space. The delivery service company has overcome multiple challenges in the past and reported sales of US$23.5 billion in fiscal Q2 of 2022 which was up 14% year over year. Its adjusted net income stood at US$4.83 per share which was flat year over year.
Analysts expect FedEx sales to rise by 11% to US$93.06 billion in fiscal 2022 and by 4.6% to US$97 billion in 2023. Its adjusted earnings per share are forecast to rise at an annual rate of 17.6% in the next five years.
Wall Street also expects FedEx stock to rise by 20% in the next 12-months.
United Parcel Services
The final stock on my list is United Parcel Services (UPS:NYSE) which is valued at a market cap of US$188 billion. UPS is an industry-leading blue-chip company that offers growth, value as well as income to investors.
Its sales have risen by more than 50% in the last five years. Further, the company’s double-digit operating margins have allowed it to generate robust cash flows and increase dividend payouts that currently stand at US$4.08 per share.
UPS is looking to increase prices by almost 6% in 2022 to offset higher labor and supply-chain costs. Investors will be closely watching the company’s top-line in the upcoming months to see if price increases have a sizeable impact on demand.
Supply chain disruptions erupting due to the ongoing pandemic have been one of the top stories in the past year. Several heavyweights that include Apple (AAPL:NASDAQ) and Tesla (TSLA:NASDAQ) have been unable to meet consumer demand dragging down revenue projections. Further, an increase in delivery costs has also hurt profit margins in recent months. Customers on the higher hand are wrestling with higher prices as well as longer wait times.
The companies mentioned in this list have managed to navigate a volatile macro-economic environment and remain an important part of the economic flywheel as they are well poised to benefit from several secular tailwinds that include a rapidly expanding e-commerce market. This article can be used as a starting point for those looking to invest in the logistics segment.