Why XPO Logistics Looks Like a Good Bet

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The Nasdaq and a long list of momentum stocks tumbled earlier this year. The transportation sector also, surprisingly, saw a considerable about of weakness — it’s a space that’s considered by many to be the quintessential reflection of the overall economy. Since then, industry leaders like FedEx Corp. (NYSE:FDX) and CH Robinson Worldwide (NASDAQ:CHRW) have recovered, but strangely, one of the sector’s best growth names has continued to fall, and should now be on your radar.

XPO Logistics (NYSE:XPO) is essentially the little brother of CH Robinson, operating in a third-party freight brokerage segment that is growing two to three times faster than the overall transport sector. In a previous article entitled “Is J.B. HuntTelling You to Buy C.H. Robinson and XPO Logistics?” I identified very obvious strengths in a highly diversified J.B. Hunt (NASDAQ:JBHT), specifically in its non-asset based freight brokerage business.

Essentially, J.B. Hunt’s non-asset business, called ICS, drove the growth within in its last quarter. Specifically, ICS saw 33 percent growth and accounted for 11.5 percent of total sales, but more importantly, its growth was created by a weakness in rail due to harsh weather, which consequently increased the demand for trucks, including long-haul. The conclusion was that peers XPO Logistics and C.H. Robinson could have strong quarters and trade higher in the month ahead.

All things considered, the assessment of J.B. Hunt was correct, at least from a fundamental point of view. C.H. Robinson grew revenue by 5 percent in its first quarter, created by weakness in rail and strength in other logistical services. However, XPO Logistics was the real gem: It grew revenue by 147.7 percent year over year, and excluding recent acquisitions, its comparable business to last year grew 51 percent.