3 stocks that turned $ 1,000 into half a million dollars
If you had invested $ 1,000 each in the shares of the trucking company Old Dominion Freight Line (NASDAQ: ODFL), food equipment company Between (NASDAQ: MIDD), and paint and coatings company Sherwin-Williams (NYSE: SHW) 20 years ago you would be worth over $ 525,000 now. While it’s easy to look at these things in retrospect, it may be helpful to look at some of the lessons learned and apply them to investments now. So with that in mind, let’s take a closer look at why the three industrial stocks have done so well.
Old Dominion Freight Line
The trucking company specializes in a niche market in the transportation industry, namely partial load transportation (LTL). In a nutshell, LTL means that a customer’s freight is combined with the freight of other shippers and then transported between multiple terminals to its final destination. This is different from Full Truck Shipping (FTL) where a customer’s shipment is loaded onto a dedicated truck and then taken directly to its final destination.
The main advantage of LTL is that shippers can send smaller shipments. This is a significant benefit for shippers who need to ensure a constant flow of shipments, such as securing e-commerce deliveries or maintaining inventory in a warehouse / store. Therefore, it is quickly available to customers.
As such, it is not difficult to see that the LTL industry has benefited from the growth of e-commerce, especially small businesses. Additionally, the development of e-commerce has prompted retailers to ensure product availability in the store – good news for Old Dominion.
The company has an admirer in the leading figure in transportation in the United States FedEx Founder and CEO Fred Smith noted on a call for results, “They’ve been very brilliant in finding a niche that’s, for lack of a better term, near TL. It’s in that area between LTL and TL. , and their average weight per shipment in a much denser network is about 350 pounds, 400 pounds more. So their margins are exceptional. “
The rise in Old Dominion’s share price is an example of a leading trader focused on a niche market that has benefited from long-term positive changes in demand. Plus, it shows what happens when a business focuses on what it does best.
The astonishing performance of the food equipment business can be attributed to a very successful acquisition strategy. According to documents filed by Middleby with the SEC, âthe company pursued a strategy of acquiring and assembling a portfolio of leading brands and technologies for each of its three business segments.
The commercial foodservice segment (66 different brands) sells to quick service restaurants, convenience stores, supermarkets, hotels, etc. The food processing segment (21 different brands) sells baking and baking equipment to food processing companies. While the residential kitchen segment sells a wide range of equipment through its 17 different brands.
Middleby’s story is one of growth driven by acquisitions. Nonetheless, as you can see below, even though its debt has increased (taken to fund acquisitions), the company’s debt-to-equity ratio is manageable. In other words, it is not about chasing growth through reckless acquisitions.
All in all, the success of Middleby’s stocks demonstrates what happens when management actively pursues acquisition-driven growth in a growing industry.
The success of the paint and coatings business is testament to a combination of the fundamental attractiveness of the paint and coatings industry and the potential for growth through consolidation of an industry.
As long as physical assets are created (housing, automobiles, planes, ships, packaging, etc.), they will need to be coated. In addition, it is a market that involves a significant amount of recurring income: cars must be repainted, houses renovated, etc. As such, the industry’s market position is stable.
In addition, major players like Sherwin-Williams and PPG consolidated a highly fragmented industry through a continuing wave of acquisitions such as Sherwin-Williams’ acquisition of Valspar for $ 11.3 billion in 2017.
The chart below shows the high return on equity (net income divided by equity) generated in the industry and the upward trend in profit margin that often occurs as industries consolidate and gain capital. magnitude.
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All in all, Old Dominion highlights the advantage of being a highly skilled trader in a growing niche market. Likewise, Middleby represents a skilled management team buying growth in a growing industry, and Sherwin-Williams shows the power to nurture a fragmented market.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.