Berkshire AGM Recap and Trucking Stock Summary
This week I recount my visit to Omaha plus I looked at a few trucking companies
It’s already been two weeks, but I am still trying to get back into a rhythm after the Berkshire weekend. Usually I say the highlight for me is hanging out with other investor nerds vs attending the main event (I don’t work in finance so I get lonely). However, this year I am glad I attended the Q&A to witness Buffett announcing he is stepping down at the end of the year. In my typical awkward fashion, the standing ovation caught me off guard because people started clapping after he said he wasn’t selling any shares, and I wasn’t sure if he was done talking. It reminded me of the Seinfeld bit regarding standing ovations where he says “…oh, I guess we’re standing now”. In all seriousness, it was a pleasure to give thanks to Buffett who has been such a role model and teacher for all these decades.
I didn’t hear Buffett give any figures on the size of the crowd, but it seemed to be the most people I have seen over the course of my five visits. On Friday, pretty much every booth in the convention center had crazy lines where in most years maybe Fruit of the Loom has a long line. Usually on the morning of the Q&A I get in line an hour before doors open because I’m fine sitting in the nosebleeds. This year the line kept growing and for some reason my line wasn’t moving so I was lucky to get a seat in the arena. Then usually the crowd thins out after the Q&A break so that you can get a much better seat, but not this year. I guess everyone got the memo this would be a historic meeting.
Most of the weekend I spent my time trying to chat with other investors. It was great to meet some new people as well as hang out with some folks I met a few years ago. that being said, as an introvert I was quite drained by the end of the weekend! It will be interesting to see if Buffett partakes in the Q&A next year, but either way I plan on going to at least see what the vibe is like. Plus I have to keep going to shill this Substack.
Brief Survey of Trucking Stocks
A core part of value investing is to identify stocks in out-of-favor industries, especially during downturns. Recent headlines about tariffs and plummeting shipments from China led me to consider the trucking sector, which could be significantly impacted and potentially undervalued. I noticed that many trucking stocks had dropped roughly 50% from their 52-week highs around the peak of trade war fears in April. However there has been a decent rebound in the past few weeks following a pause in tariffs and renewed negotiations with China. Hopefully I didn’t miss the boat (or truck?).
Since I haven’t previously analyzed trucking companies, I took this opportunity to familiarize myself with a few names, examining their profit margins, returns on assets (ROA), valuation multiples, and dividend yields. The only trucking company that I have heard people mention is Old Dominion Freight Line, where its supposedly a high quality company. Besides that, I just picked a few companies of various market capitalization where I recognized the the name from seeing the truck on the highway.
Old Dominion Freight Line (ODFL) was the largest company in my sample by market capitalization and also boasts the best ROA and operating margins, indicating a potential competitive advantage. Its elevated price-to-book ratio and a lofty 46x multiple on its five-year average free cash flow suggest that the market is pricing in high quality and growth, possibly supported by strong revenue trends. If ODFL does indeed have a moat, it may be appropriate to value it using the growth return model, which considers both current earnings power and long-term growth prospects.
The next company, Saia, is the second-largest in the sample and shows solid ROA and margins. However, its free cash flow has been mostly negative over the past five years, possibly due to high capital expenditures. Despite this, its operating profit stands at $434 million, translating to a 5.5% yield, which isn’t particularly cheap unless revenue growth has been exceptional. Its price-to-book ratio isn’t deep value territory but might be justifiable given its profitability.
Knight-Swift (KNX), similar in size to Saia, appears less impressive, with lower ROA and operating margins. Its five-year average free cash flow multiple is 21.6f, which is not exactly cheap. However, its price to book ratio is only 1.1, which is almost in value stock territory. Given that its average ROA likely falls below its cost of capital, I’d lean toward valuing Knight-Swift based on its assets.
Werner Enterprises (WERN), with a $1.7 billion market cap, is smaller than KNX and has mediocre performance metrics. Its ROA seems slightly below its cost of capital, and operating margins are weak. Average free cash flow has been negative over five years, though its five-year cumulative operating profit totals $220 million, yielding a 7.7x price-to-operating profit multiple. This might signal some value, but more analysis of the income statement is needed. With a price to book of 1.2, Werner might be worth a look if it trades below net asset value.
Lastly, PAMT, a microcap with a $340 million market cap, shows the weakest ROA and operating margins in the sample. Still, it has averaged $41 million in free cash flow, resulting in a low price to FCF multiple of 8.3. A FCF multiple below 10 is worth a look for me. Like KNX and WERN, its price to book ratio is modest. While PAMT looks undervalued on a cash flow basis, its weak returns suggest it’s more appropriate to value it based on assets.
Despite these stocks being significantly off their highs, few of them strike me as true bargains. Dividend yields across the board are lame. ODFL and Saia stand out as higher-quality businesses, with superior margins and ROA, potentially justifying their premium multiples. In contrast, Knight-Swift, Werner, and PAMT seem more what I imagined a trucking company to be like: thin margins, mediocre returns, and valuations near book value. Given my focus on deeply undervalued opportunities, I might revisit KNX, WERN, or PAMT if they dip meaningfully below book value. That said, I’m also intrigued by ODFL and would like to understand what allows it to possess a moat in such a competitive industry.
Stocks mentioned: ODFL 0.00%↑ SAIA 0.00%↑ KNX 0.00%↑ WERN 0.00%↑ PAMT 0.00%↑
compare value favs heartland, canadian tfi.