When I last wrote about Old Dominion (NASDAQ:ODFL) in December of 2015, I was concerned that a slowdown in the broader U.S. economy was going to weigh on short-term sentiment of this top-notch less-than-truckload (or LTL) carrier. For about a month or so, that did in fact happen, with the shares dropping about 20% to their mid-January lows. Then the industrial rally hit, taking the shares back above $70, before cooling down into summer ahead of yet another small recent rally. All told, the shares are about 2% higher than they were at the time of that last piece - a little worse than Saia (NASDAQ:SAIA), but better than quite a few other peers/comps.
All of that up and down is a pretty good reflection of what seems to be going on in the economy. There are definitely areas of weakness, as manufacturing-heavy MRO distributor MSC Industrial (NYSE:MSM) highlighted recently, but it also seems to be true that the economy is not careering toward disaster. For truckers, it has been messy. The overall upward trend from 2014 is still in place, but there have been some tough months along the way, and the second quarter is not shaping up to be too pretty.
Stock opportunities like Old Dominion are why a lot of professional investors and analysts are grey before age 40. On the positive side, Old Dominion is probably the best-run trucking company out there (at least in the LTL space) and it still has room to grow to over 10% national share and improve its margins even further. It's also trading below its historical average EV/EBITDA multiple. On the negative side, the second quarter is probably going to be ugly on both a revenue and cost/operating leverage basis, and I don't think a big volume/tonnage rebound is in the cards until after this year.
Cyclical stocks like Old Dominion can get very weak during the doldrums, even while everybody acknowledges that better days will come again and the company will do well then. I find the long-term valuation pretty appealing, but this might be the sort of stock to buy in pieces (dollar-cost averaging) if you're concerned about the economy over the next six to 12 months.
Old Dominion Navigating A Bumpy, Pockmarked Road