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Taking a Look at Supply Chain Stocks

A few months back, SCDigest re-launched our weekly supply chain and logistics stock market index, which tracks the market performance of 23 publically traded companies across freight carriers, logistics service providers/3PLs, and supply chain hardware and software providers.

You can see an example in last week's stock market report here.

We ran this feature weekly a number of years ago, but discontinued it for reasons I can't really recall. But I think it was smart to bring it back - it's intersesting drives a lot of web site visits.

As an amateur investor like many/most of us, I thought it might be interesting to offer some analysis and insights from helping to put this stock chart together each week.

Of course, this comes at a time when the market continues to go up and up, quickly recovering from the 30% or so decline in the S&P 500 index right around this time in 2020, as the virus pandemic began to unfold.

For the past year, the S&P is up about 63%, but that is from when market was tumbling in March. Versus right before that steep virus-induced fall, the S&P is up a solid but more modest 16%.

Supply chain software values are generally high. You might have seen this week that JDA is apparently going to be acquired by Panasonic for $6.5 billion. That would be not too far away from about six times revenues, by my guess (JDA is privately held and its revenues are not public.)

Last November, procurement software vendor Coupa rather oddly to my view announced it was acquiring supply chain design software company LLamasoft for $1.5 billion, for a company I would guess had perhaps $100 million in revenue, though growing rapidly.

A supply chain planning software vendor in our index many of you probably have never heard of is named Kinaxis, It now has a market cap of almost $2.9 billion, on 2020 sales of just $300 million. And that market cap is down around 15% since the end of February and more from late 2020, when the multiple of sales was therefore even higher.

Another software company, Manhatten Associates, has a market value of $7.8 billion, on $600 million in 2020 sales.

Contrast those valuations with say truckload carrier Werner, which sports a market cap of $3.1 billion, not much higher than 2020 revenues of $2.3 billion.

It's been interesting to track the ERP software companies. Oracle for example, has lately jumped to almost $70 per share, from $45 last March. Rival SAP has gone the other way, falling to around $125 per share, down from $166 last August. It may be a good buy right here.

But using an unweighted average, meaning based on percentage changes alone across companies, not considering market caps, our six software companies in the index rose only 32% over the past year, half the gain of the S&P over the same period. (Note a seventh software firm in our index, e2Open, only recently became a public company, and so doesn't have a price a year ago to compare to in terms of percentage change.

RFID technology vendor Impinj has had a wild ride on Street since it went public in August of 2016, at about $20 per share. It rose to $58 by June of 2017, then collapsed to $12 in April 2018. From there it rose and stayed around $30 for the second half of 2019, before falling in half again by the big market downturn last March.

But Impinj started rising towards the end of 2020, now reaching around $60 per share. My amateur advice: the next time the stock again tanks when Impinj has a weak quarter, consider buying a few shares.

It's been a Wild Ride of Impinj Stock Since It Went Public in 2016

The rise of Zebra Technologies, maker of data collection equipment and systems, has certainly been extraordinary. Its share price, I now see, started a steady rise in 2017, when it be began the year at $85 per share. It reached $250 in early 2000, before falling with the rest of the market in March to $180.

It's been gangbusters ever since, with Zebra now at an incredible $480 per share. I would take some profits.

It's been interesting to follow the parcel stocks. FedEx reached about $275 per share in early 2018. But it was mostly down from there, a fall accelerated when FedEx announced it was abandoning its Amazon business in mid-2019, somehow generating questions about its future prospects. Its stock price fell to just 106 in last March.

In what now seems like an obvious buy, from those March lows FedEx benefitted from the surge in ecommerce, and is now back to around $275. I am kicking myself on that one.

A somewhat similar if less dramatic story for UPS, which saw its share drop to $90 in March, from $120 a few months before. Why didn't I see that opportunity either? UPS is now at $168 per share.

If you bought the stock of LTL carrier Yellow Freight (the name recently changed from YRC Worldwide) a year ago, you'd be up around 215%, but it's been a wild ride up and down from the financially beleaguered carrier.

When I restarted the index, I was hoping to find there was extra money to be made in supply chain and logistics companies versus average stocks.

Alas, that appears not to be the case. Our index last week was up 62.2% over the past year. The S&P index was just a bit better though, rising 63.5%.

But ripping off Jim Cramer, I say there always has to be a supply chain stock bull market somewhere.

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