Buy on EXPEDITORS INTERNATIONAL OF WASHINGTON (EXPD)

EXPEDITORS INTERNATIONAL OF WASHINGTON (EXPD) – This is one of the few forward growth stock plays that we’re issuing, largely because of the unique parameters of EXPD’s high cash flow, low debt business model.

Expeditors International of Washington is a non-asset-based freight-forwarding and third-party logistics, or 3PL, provider.  It is the best and nearly the biggest in its business.  It has been profitable, and is a long-run-focused firm sitting on a mountain of cash.  It owes no debt, and produces strong cash flows of 17+% while deploying nearly no assets. Expeditors’ has had a record of steady growth, high margins, and high returns on invested capital.

We see it as a long term holding. With prices affected by sluggish demand for shipping, it is still trading near the bottom of its range.  Morningstar gives it a fair market value of $61.00, so current price is about a 38% discount to FMV.  The 1.7% dividend is nothing to write home about comparatively to our other holdings, but it does keep inflation out of the picture and allows time for a growth upswing in transportation which should start within a few months after the November elections here, and some improvements in Asia’s economy that are trending toward increased shipping.

It’s trading flat to down slightly (4% from our original position), but we’re adding shares as opportunities around $38.00 or less present themselves.  BUY/ACQUIRE.

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  1. #1 by Buffestor on July 29, 2012 - 1:29 am

    While searching through the fortune 500 list of companies I also found EXPD and I have them on my list for attractive companies. Their historic earnings growth and stability is strong. I have not found them particularly attractive as of yet because of their high P/E ratio but they would be a beautiful long term investment if had at the right price. Right now google finance lists them at a P/E of 20 (i buy at 15 or less regardless of growth prospects). Enjoyed your post though.

    • #2 by Brian Ross on July 29, 2012 - 10:46 am

      P/E investing is a fine principle. Like any guideline it should be just that. A 5 point P/E difference alone should not be your guiding light. There is a point where some exceptionally good stocks still rise to slight premiums above that P/E target that are still wholly worthwhile. If you were talking a 10 point or greater spread, I’d be with you, but at 5? That may be a bit too severe. Thanks for reading!

      • #3 by Buffestor on July 30, 2012 - 4:16 pm

        I understand what you are saying here with P/E investing or value investing. I personally would jump at a P/E of 10 or less for EXPD . . . but for me I just make it a personal rule to never go over P/E of 15. You are right there might be some great companies that are great investments above 15 P/E but I am trying to follow Benjamin Gaham’s advice for value investing. He says to never buy over 15. Have you read the book the Intelligent Investor? Its one of my favorites.

      • #4 by Brian Ross on September 26, 2012 - 3:28 pm

        I have read it, yes. I draw from it and many other investing tomes, and about 35+ years of doing this myself and profiting well from it. Several issues. Graham’s financial universe and ours are vastly different. I have found, over years of trial and error, that book value discounts of 17% or better and high free cash flow greater than zero and at least a 10% ROE model much better in the world of hedge funds and levels of speculation and Emperors New Clothes financial products that did not exist during Graham’s time. If we went strictly by Graham’s formulae we would miss some opportunities.

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