YRC Worldwide, Inc. (YRCW), XPO Logistics Inc (XPO): Identifying the Greatest Upside in the Transport Sector

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Lastly, Bradley Jacobs, the CEO of XPO Logistics, has built four multi-billion-dollar companies in his career, and from scratch. XPO Logistics was an established company that benefited from a $150 million investment from Jacobs, which then led to him taking over the board and becoming the CEO. He has hired an all-star team of executives and aims to turn XPO Logistics into a several billion dollar per year company in the next two to three years. The company has a lot of cash and the flexibility to move in any direction desired. YRC Worldwide does not have this luxury, nor does it have the executive star power. In a sense, YRC Worldwide is in survival mode while XPO Logistics Inc (NYSE:XPO) is in aggressive growth mode.

    Conclusion

    In my book, Taking Charge With Value Investing (McGraw-Hill, 2013) I discuss many levels of value, and for more speculative and riskier investments I say to seek “tons of revenue” relative to market capitalization and a company that has the means to improve efficiency. In many ways, YRC Worldwide, Inc. (NASDAQ:YRCW)meets the criteria, as I already explained that a very small 0.50% profit margin could lead to massive gains. However, I am not sold on whether it will be done, and I didn’t see enough optimism in a conference call that should have been exploding with excitement.

    On the flip side, XPO Logistics Inc (NYSE:XPO) is cheap, and is projecting sales of more than $1 billion next year. When you consider 7% margins for when the company finally transitions from growth to efficient combined with an S&P 500 price/sales ratio of 1.50 you can see that XPO Logistics with a $300 million market cap is also cheap. In my opinion, the likelihood of XPO Logistics becoming a $2 billion company with a price over $100 is far greater than YRC Worldwide’s likelihood of reaching consistent profitability. For that reason, I believe XPO Logistics is the greatest value in the space.

    Brian Nichols owns shares of XPO Logistics. The Motley Fool has no position in any of the stocks mentioned.

    The article Identifying the Greatest Upside in the Transport Sector originally appeared on Fool.com and is written by Brian Nichols.

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