Expeditors EXPD
And: CNN drills into gas prices…. …but comes up empty.
Weekly Stock Pick
Fifteen years ago, I had a customer in Washington State - Expeditors. Calling on them was different than calling on other customers. There wasn’t a lot of chit chat about the rainy weather. They’d skip the Seattle niceties about ‘have you seen the Pike Place Market yet?” If I recall they didn’t offer coffee.
They’d beat me up on price. They’d demand (and in turn receive) faster service. Quarter after quarter, year after year - they never let up. The two regional managers I dealt with were skilled at squeezing concessions from vendors like me. They paid their bills on time and they bought in volume. Not a bad customer. Just different.
Expeditors is a logistics company providing air and ocean freight forwarding services. They move goods around the world in the service of global trade.
Expeditor’s senior management believes that their corporate culture is a key competitive advantage for them. It is something that is fundamental to their business and cannot be replicated by others. They explain this in an SEC filing
We reinforce <our> values with a compensation system that rewards employees for profitably managing the things they can control. This compensation system has been in place since we became a publicly traded company. There is no limit to how much a key manager can be compensated for success. We believe in a "real world" environment where the employees of our operating units are held accountable for the profit implications of their decisions.
That certainly rings true.
A lot of businesses move things. UPS and FEDEX are the ones you see on the streets every day. Over the years they have invested massive amounts of capital in their infrastructure.
Their size of their fleet of airplanes and trucks makes it almost certain that no new competitor can come into the market and beat them. It gives them pricing power.
Expeditors is different. They don’t own any trucks or airplanes. They send a lot of cargo on ships but they’ve never owned a ship. What they do have is a network of shippers and a network of carriers. They connect the two. This network, along with their unique culture, is a key competitive advantage. Over time the network effect compounds to Expeditor’s advantage.
UPS, FEDEX and Expediters are all good businesses. All three are selling for a discount to a calculated net present value.
FEDEX and Expeditors are attractive at 32% and 37% discounts to my calculation of their present value.
I like both. If the prices drop a little this coming week, I plan to buy them.
CNN drills into gas prices
On Thursday, March 10th CNN’s Climate Reporter Ella Nilsen published this:
“Why record-high gas prices won’t be solved by drilling more oil in the US”
Here’s a link to the full article.
https://www.cnn.com/2022/03/10/politics/record-gas-prices-wont-be-solved-by-drilling-more-oil-climate/
I had to read this article a few times to understand why it made no sense.
Please read it and let me know in the comments if you agree.
In the piece, there’s a sensible description of the prewar state of the oil market: “Organizations like OPEC+ have a huge influence on prices, which fluctuate due to production...oil prices were … rising …. because Saudi Arabia and Russia were producing less”
So, when production of this global commodity goes down prices go up. So far, so good.
Nilsen also connects oil prices and gasoline prices: “The global price of oil determines gas prices in the US, and it’s impossible to divorce that price from the shifting global dynamics.”
That makes sense.
And Nilsen establishes that in the global oil market supply is more or less fungible as “Everybody pays the same price for crude oil,”
Parsing all this out, US gas prices rise when oil prices rise. Oil prices also rise when global supply is reduced.
Because everyone pays the same price we know that all oil supply is connected – supply anywhere is supply everywhere in this global commodity market.
So, should the US step up oil production? If prices go up when oil supply goes down won’t price go down, or at least go up less, if oil supply goes up?
Well…. CNN dares not go there.
Instead, Nilsen erects and demolishes the rhetorical straw man of “Energy Independence!”
Producing more oil is folly, Nilsen explains, because “The idea that the US can be fully energy independent – and that it would combat rising gas prices – is a fantasy, numerous experts told CNN.”
The author spends a great deal of time throughout debunking the notion of energy independence.
Even though “the price of gasoline…. has almost nothing to do about whether we’re energy independent or not”
So why not admit that, yeah, the US should probably produce more oil? Because, Nilsen explains “If most consumers were driving electric vehicles, gas-price shocks wouldn’t hit so hard.”
Okay, got it.
For a different perspective see this satire piece:
“Nation Wishes We Had Our Own Oil We Could Dig Up With Big Machines And Then Transport Around With Some Kind Of Pipeline”
Weekly Stock Pick Portfolio as of 3/11/2022
The Weekly Stock Pick newsletter is not financial advice. It’s a personal project.
The WSP project tests a theory that, over the ten-year period that began in April of 2020, a portfolio of individual stocks bought at a steep discount (40% or better) to their estimated present value will outperform the S&P 500 index. I use the Spider ETF SPY as a convenient proxy for the S&P 500.
I print the portfolio each week. 99 weeks into this 520-week project the portfolio looks like this vs the index ETF SPY:
April 20, 2020 to March 11, 2022
Including only those dividends received through 12/31/2021 the portfolio returned 14% annualized vs the index’s 11% So far, so good.
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[1] My editor is back this week (Spring Break). If you noticed that there are fewer comma splices and run on sentences – that’s why.