Better Buy: XPO Logistics vs. General Motors

Big changes are afoot in the transportation sector.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Autonomous-vehicle technologies and the growth of ridesharing threaten to upend General Motors‘ (NYSE: GM) traditional leadership in automobiles. Meanwhile, similar forces are impacting the logistics industry, testing XPO Logistics‘ (NYSE: XPO) strengths, as Amazon.com and Uber see big opportunity in freight and logistics.” data-reactid=”12″>Autonomous-vehicle technologies and the growth of ridesharing threaten to upend General Motors‘ (NYSE: GM) traditional leadership in automobiles. Meanwhile, similar forces are impacting the logistics industry, testing XPO Logistics‘ (NYSE: XPO) strengths, as Amazon.com and Uber see big opportunity in freight and logistics.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="As a result, both GM and XPO are trading at a discount. XPO stock has fallen by more than 50% from its 52-week high on concerns about slowing growth, the loss of business from its biggest customer (widely believed to be Amazon), and even an attack from a short-seller.” data-reactid=”13″>As a result, both GM and XPO are trading at a discount. XPO stock has fallen by more than 50% from its 52-week high on concerns about slowing growth, the loss of business from its biggest customer (widely believed to be Amazon), and even an attack from a short-seller.

GM, on the other hand, trades at a P/E ratio of just 5.9 as investors seem skeptical about the future of conventional automobiles as ride-hailing and self-driving cars emerge. In addition, concerns about trade tensions with China and Mexico have pressured the stock.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Given those developments, value investors may be interested in both GM and XPO. Let’s take a closer look at each stock to see which one is the better buy today.” data-reactid=”15″>Given those developments, value investors may be interested in both GM and XPO. Let’s take a closer look at each stock to see which one is the better buy today.

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Image source: Getty Images.

<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="A carmaker in transition” data-reactid=”28″>A carmaker in transition

Of all the legacy carmakers, GM may be the best prepared for the coming shifts to electric vehicles (EVs) and autonomous vehicles (AVs) as CEO Mary Barra has outlined a company goal of zero crashes, zero emissions, and zero congestion.

To achieve that, GM is investing in a number of initiatives in EVs and AVs. Led by the Bolt EV, GM claimed nearly a quarter of electric and plug-in hybrid sales in the U.S. last year, and the company has a strong position in China, a fast-growing EV market and the world’s biggest auto market, where it sold 3.6 million vehicles last year. 

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="In autonomous vehicles, the company's prospects look even brighter. Its Cruise AV division is now valued at $19 billion, or more than a third of GM’s total market cap, and the company is planning to launch an AV ridesharing service in San Francisco later this year, an event that could lead to a surge in the stock.” data-reactid=”31″>In autonomous vehicles, the company’s prospects look even brighter. Its Cruise AV division is now valued at $19 billion, or more than a third of GM’s total market cap, and the company is planning to launch an AV ridesharing service in San Francisco later this year, an event that could lead to a surge in the stock.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Despite those initiatives, a highly profitable North American business, and a dividend yielding about 4%, investors have largely snubbed the stock in favor of more disruptive challengers like Tesla and Uber. With GM shares trading at just 6 times earnings, the stock could easily rise if GM shows progress in its key initiatives.” data-reactid=”32″>Despite those initiatives, a highly profitable North American business, and a dividend yielding about 4%, investors have largely snubbed the stock in favor of more disruptive challengers like Tesla and Uber. With GM shares trading at just 6 times earnings, the stock could easily rise if GM shows progress in its key initiatives.

<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="A reset for an aggressive logistics company” data-reactid=”33″>A reset for an aggressive logistics company

For years, XPO expanded into disparate corners of the logistics industry through acquisitions, including its $3.5 billion deal to take a 67% stake in Norbert Dentressangle, a French third-party logistics provider, in 2015, and its $3 billion acqusition of Con-way, a North American freight and logistics company, that same year.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Wall Street therefore anticipated another big acquisition in the future. Yet after the stock tumbled following a series of disappointing earnings reports, an attack from a short-seller, and news that Amazon was pulling much of its business with XPO, CEO Brad Jacobs decided to pivot on its capital strategy. The company is now focused on spending cash that would have gone to acquisitions on share buybacks, and even dismissed its acquisitions-focused COO.” data-reactid=”35″>Wall Street therefore anticipated another big acquisition in the future. Yet after the stock tumbled following a series of disappointing earnings reports, an attack from a short-seller, and news that Amazon was pulling much of its business with XPO, CEO Brad Jacobs decided to pivot on its capital strategy. The company is now focused on spending cash that would have gone to acquisitions on share buybacks, and even dismissed its acquisitions-focused COO.

Between Dec. 14, 2018, and April 30, 2019, the company bought back $1.9 billion worth of stock, amounting to more than a third of its market cap, a move that could significantly pump its earnings per share if the company’s financial performance bounces back.

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