Joel Greenblatt (Trades, Portfolio) purchased a 1,726,860-share stake in Swift Transportation Co. (SWFT, Financial) in the first quarter.
Swift Transportation is a Phoenix-based publicly held American truckload motor shipping carrier. Jerry Moyes, along with his father and brother, founded Swift Transportation in 1966 with only one truck. As of December 2015, Swift had expanded its operations exponentially over the previous 50 years. It now has 17,915 operational trucks, and it is the largest common carrier in the U.S.
Swift Transportation has a market cap of $2.14 billion, a P/E ratio of 11.89, an enterprise value of $3.04 billion and a P/B ratio of 3.54.
According to GuruFocus Swift Transportation has a 5/10 financial strength rating and a 6/10 profitability and growth rating.
Greenblatt may have purchased the stake for the following reasons:
- Swift Transportation  has a low 11.89 P/E ratio. When Greenblatt is making value investment decisions, he looks for companies that have a low P/E ratio.
In Greenblatt's book “You Can Be A Stock Market Genius Even If You’re Not Too Smart,” he compares low P/E investing to the father of value investing Benjamin Graham's philosophies on investing.
“A widely diversified portfolio of stocks with low P/E ratios and low price-to-book ratios still produces excellent results and is relatively easy to emulate. Graham figured that if you owned 20 or 30 of these statistical bargains, you didn't need to do extensive research. You don't. Reading and studying Graham's work is how I first became fascinated with the stock market. I still apply his teachings wherever and whenever I can. It's just that if you are willing to do some of your own work, pick your spots and look in places where others are not looking, you can do significantly better than Graham's more passive method.”
- The company has increased its free cash flow by 87.3% over the previous 12 months, and since Dec. 28, 2011, the company's free cash flow has increased by an average of 27% annually.
Below is a chart for Swift Transportation's free cash flow (as of March).
- Swift Transportation has the differentiation advantage of being the largest operational carrier in the U.S. It already owns 17,915 operational trucks.
- The company has 50 years of operating experience in the Global Trucking industry.
Below is a Peter Lynch Chart for Swift Transportation.
Greenblatt is a graduate of The Wharton School at the University of Pennsylvania, and he is the co-chief investment officer of Gotham Asset Management, an investment firm that began in 1985 with $7 million. Today, Gotham owns 950 stocks with a total value of $8.92 billion.
Conclusion
Swift Transportation has a low P/E ratio with 50 years of operating experience within its industry. The company has reported solid free cash flow growth over the previous five years, and the company has the differentiation advantage of already owning 17,915 operational trucks and being the largest operational carrier in the U.S. All of these factors may have influenced Greenblatt's decision.
Cheers to your investment success.
Disclosure: Author does not own any shares of this company.
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