Investor Essentials Daily

This company’s fleet will keep the economy’s wheels turning

May 16, 2023

People have valid reasons to question the overall health of our economy. Although, there’s something nobody can question – the fact that we need trucks for the economy to run.

The trucking industry has strong tailwinds, such as strong personal consumption and supply chains being rebuilt.

One of the biggest winners of this is Fleetcor Technologies (FLT). With payment systems allowing truckers to pay for their gas with ease, it is essential to the industry.

This importance has brought high returns and growth that the company will likely maintain. However, the market fails to recognize that, as the stock trades at very low multiples.

That is why Fleetcor showed up on our screen. Its high returns, high growth, and low valuations make it a great FA Alpha 50 name.

Investor Essentials Daily:
Tuesday FA Alpha 50
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The economy seems like it’s on the edge.

Inflation is still high, the Fed is still increasing interest rates, layoffs are mounting, and a recession might be looming.

That said, some parts of the economy are unequivocally performing well, even today.

One of them is the Trucking Industry. The industry is being overlooked as the country continues to have issues hiring enough drivers to keep up with demand.

So, even if the U.S. economy slows down further, we still need trucks to transport all the goods nationwide. There are several reasons for that.

First of all, investments in U.S. supply chain and infrastructure projects have been ramping up since the pandemic. This includes companies bringing their manufacturing facilities to the U.S. to make supply chains more efficient.

Second, personal consumption is still strong despite the high inflation and news of people losing their jobs.

Both of these trends require trucks to move goods around the country. One big winner from that is Fleetcor Technologies (FLT).

The company is specifically focused on providing fuel cards and fleet payment solutions. It allows truckers to easily pay for all their gas without dealing with reimbursement and everything else.

More trucks mean higher demand for Fleetcor’s systems, which makes them highly profitable.

The company’s return on assets (“ROA”) was around 100% in 2020 and is still higher than 70% in 2022.

Considering long-term trends supporting the trucking industry and how essential Fleetcor’s services are to those truckers, one would expect them to maintain high margins.

However, the market does not think so because Fleetcor’s stock is trading at only 10x price-to-book (“P/B”) and 15.6x price-to-earnings (“P/E”) ratios. For a company with such high profitability and growth, these numbers seem low.

As long as the trucking industry does not come to a full stop, the company is likely to continue to thrive.

That is why Fleetcor showed up on our screen. Its high returns, high growth, and low valuation make it a great FA Alpha 50 name.

Throughout financial market history, many of the world’s most successful investors have been candid in their belief that Generally Accepted Accounting Principles (“GAAP”) distort economic reality.

Warren Buffett, for example, once said investors should “concentrate on the world of companies, not arcane accounting mathematics.”

Investors who neglect the very real issues with as-reported accounting can find themselves caught up in investing with the crowd, blindly following hot “themes” without a thorough grasp of how to understand the businesses in question.

The only true way to focus on the “world of companies,” as Buffett suggests investors do, is to present a clear picture of how a business operates, something that can only be done by adjusting financial statements to reflect the arbitrary nature of certain accounting rules that leave much to discretion.

The world’s best investors understand the need to make these adjustments, which allows them to focus not on picking out the most popular companies but rather on looking for great names in sleepy areas that the market isn’t paying much attention to. From there, the goal is to then identify quality companies with significant growth potential at reasonable prices.

That’s exactly what we’ve set out to do with the FA Alpha, our monthly list of 50 companies that rank at the top for quality, high growth, and low valuations.

This list has outperformed the market by 300 basis points per year for over 20 years now, effectively doubling the performance of the market by focusing on the real fundamentals and valuations of companies with our proprietary Uniform Accounting framework.

See for yourself below.

To see the other 49 names on the list, click here

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

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