On Friday morning, market indexes rallied on the back of a stronger-than-expected jobs report for the month of May, which saw nonfarm payrolls increase by 339,000 compared to projections of 190,000. This also marked the 29th consecutive month of positive job growth.
As such, the Dow Jones Industrial Average jumped 1.30%, while the S&P 500 Index gained 0.90% and the Nasdaq Composite advanced 0.60%, reaching its highest level since April of 2022.
Among individual sectors, industrials have recorded the second-highest gain year to date with a return of 3.90%.
Based on these developments, investors may be interested in potential opportunities among industrial companies that qualify for Benjamin Graham’s Lost Formula screen, a Premium GuruFocus feature.
Prior to his death in 1976, the legendary investor who authored "Security Analysis" and "The Intelligent Investor" developed a refined formula that screened for companies with a price-earnings ratio of less than 10 and an equity-to-asset ratio of at least 0.5. The formula got its name from the fact he was unable to publish it before his passing; therefore, it was lost from public knowledge for a time. Since Graham also prioritized a minimum interest coverage of 5 with the companies he invested in, that element was included in the criteria as well.
A backtest of the strategy from 1926 to 1976 showed it would have outperformed the Dow benchmark by approximately twice as much.
The screener found transportation companies, which have also recorded strong performance within the sector this year, with market caps above $1 billion that met the criteria as of June 2 were Heartland Express Inc. (HTLD, Financial), Hub Group Inc. (HUBG, Financial), ArcBest Corp. (ARCB, Financial) and Matson Inc. (MATX, Financial).
Heartland Express
Heartland Express (HTLD, Financial) has a $1.26 billion market cap; its shares were trading around $15.91 on Friday with a price-earnings ratio of 9.70, a price-book ratio of 1.45, a price-sales ratio of 1.10 and an equity-to-asset ratio of 0.54.
Founded in 1978, the North Liberty, Iowa-based company provides truckload services in the U.S. and Canada.
The GF Value Line suggests the stock is significantly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings estimates.
At 86 out of 100, the GF Score indicates the company has good outperformance potential, driven by high ratings for profitability, growth and momentum. The value and financial strength ranks, however, were more moderate.
Of the gurus invested in Heartland Express, Hotchkis & Wiley has the largest position with 0.55% of its outstanding shares. Keeley-Teton Advisors, LLC (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, First Eagle Investment (Trades, Portfolio) and John Hussman (Trades, Portfolio) also own the stock.
Hub Group
Hub Group (HUBG, Financial) has a market cap of $2.49 billion; its shares were trading around $74.67 on Friday with a price-earnings ratio of 7.51, a price-book ratio of 1.50, a price-sales ratio of 0.48 and equity-to-asset ratio of 0.57.
The company, which is headquartered in Oak Brook, Illinois, offers intermodal transportation services in North America.
According to the GF Value Line, the stock is modestly undervalued currently.
Further, the GF Score of 90 implies the company has good outperformance potential on the back of high ratings for four of the criteria and a more moderate value rank.
With 2.49% of its outstanding shares, Ken Fisher (Trades, Portfolio) is Hub Group’s largest guru shareholder. Other top guru investors include Simons’ firm, Mairs and Power (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio).
ArcBest
ArcBest (ARCB, Financial) has a $2.05 billion market cap; its shares were trading around $85.55 on Friday with a price-earnings ratio of 7.24, a price-book ratio of 1.71, a price-sales ratio of 0.43 and an equity-to-asset ratio of 0.50.
The Fort Smith, Arkansas-based holding company has operations in truckload and less-than-truckload freight, freight brokerage, household good moving and transportation management.
Based on the GF Value Line, the stock appears to be fairly valued currently.
The GF Score of 93 means the company has high outperformance potential with solid ratings for profitability, growth, financial strength and momentum. The value rank is more moderate.
Simons’ firm is ArcBest’s largest guru shareholder with a 1.18% position. The stock is also being held by Louis Moore Bacon (Trades, Portfolio), Jones, Greenblatt and Jefferies Group (Trades, Portfolio).
Matson
Matson (MATX, Financial) has a market cap of $2.57 billion; its shares were trading around $71.67 on Friday with a price-earnings ratio of 3.69, a price-book ratio of 1.13, a price-sales ratio of 0.71 and an equity-to-asset ratio of 0.54.
Founded in 1882, the company, which is headquartered in Honolulu, provides ocean shipping services across the Pacific.
The GF Value Line suggests the stock is significantly undervalued currently.
The company also has high outperformance potential based on a GF Score of 95, receiving high ratings for profitability, growth, financial strength and value. The momentum rank was more moderate.
Holding 0.91% of Matson’s outstanding shares, PRIMECAP Management (Trades, Portfolio) is the largest guru shareholder. Simons’ firm, Hotchkis & Wiley, Hussman, Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and several other gurus also have positions in the stock.
