A great deal of ink is routinely spilled on the virtues of inventing a better mousetrap or finding a better way to make that mousetrap. It is less common, though, to see the same attention given to figuring out better ways to get those mousetraps onto store shelves. While most investors are likely quite familiar with the railroad and trucking industries, and their links with a recovering economy, the same may not be true for those companies that specialize in third-party logistics and serve as intermediaries between the producers and shippers.

IN PICTURES: 9 Simple Investing Ratios You Need To Know

To that end, then, it is worth exploring whether the logistics industry is a good investment destination in today's market.

The Industry
As a very simplified explanation, these companies thrive by stepping between shipping customers and shipping providers and making life easier for both. Handling the logistics and shipping can be a major headache for companies, particularly smaller operators, and shippers can charge punishing rates for deliveries that are inconvenient or inefficient for them. On the other hand, transportation companies really do not relish the headaches and hassles of dealing with thousands of customers and having to tend to their specific needs.

Enter the third-party logistics specialists. These companies can not only consolidate shipments and negotiate bulk discounts, but they can handle many of the details that bedevil smaller customers. On the flip side, they offer the large rail, trucking and freight concerns a large consistent customer with a thorough understanding of the business and a minimal need for hand-holding. Producers save money, transporters save money and the companies in between make money.

The Companies
C H Robinson Worldwide (Nasdaq:CHRW) is the largest domestic truck broker in the U.S., and gets about three-quarters of its revenue from truck brokerage. The company is also looking to expand into the growing international air and ocean freight forwarding business. This should reduce some of the cyclicality of the business.

Expeditors International (Nasdaq:EXPD) has a long and well-deserved reputation as one of the best-run companies in the U.S., if not the world. As an air and ocean freight forwarder, Expeditors purchases cargo space for its customers and can arrange shipping to all six routinely inhabited continents. Expeditors also has a sizable customs brokerage business, and can help companies navigate the hassles and pitfalls of international trade. (For more, see What Is International Trade?)

Echo Global Logistics (Nasdaq:ECHO) is likely one of the least-known stocks on this list, but this company is making a name for itself as a multi-modal logistics provider for small and mid-sized companies. With a tech-heavy, web-based backbone that gets more valuable with more volume (basically "learning from experience"), Echo has a real shot of maturing into a player in the space.

UTI Worldwide (Nasdaq:UTIW) is in some respects a smaller version of Expeditors in that it focuses on air/ocean freight forwarding and customs. UTIW is not quite as prolific yet (operating in more than 80 countries) and does not have the same level of profitability - largely due to lower-margin service contracts and a history of growth by acquisition.

Hub Group (Nasdaq:HUBG) is a relatively unknown company that operates in a hugely significant market. Hub is the largest intermodal marketer (and a top five truck broker), and intermodal traffic is a major growth area - rail companies are seeing double-digit unit growth in intermodal traffic. Though being the largest means they arguably have the most to lose from competition, Hub should continue to profit from the above-average growth prospects of the intermodal market. (For more, see 3 Transport Stocks That Deliver.)

Landstar (Nasdaq:LSTR) does a bit of everything (truck, intermodal, customs, and air/ocean brokerage, as well as supply-chain logistics), but stands out for its ability to offer exceptional service in odd-sized freight and irregular routes. While many logistics providers focus on driving down costs by running high-density lanes with high asset utilization, Landstar can reap higher revenue by offering this more specialized service.

Bottom Line
Space does not permit a detailed analysis of each company's investment prospects, but suffice it to say that this sector has generally done well over the past two years. Expeditors and CH Robinson do not look like great bargains today, but shareholders may want to give a more careful look to Hub Group, Landstar and Echo at today's prices. (For more, see UTI Worldwide: Still A Name To Play In Freight.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!