LRT Capital Management, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. A return of +29.68% was recorded by the LRT Economic Moat strategy for the Q2 of 2021, extending its 12-month returns to +42.18%. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of LRT Capital, the fund mentioned TFI International Inc. (NYSE: TFII), and discussed its stance on the firm. TFI International Inc. is a Montreal, Canada-based transport company, that currently has a $10.3 billion market capitalization. TFII delivered a 116.61% return since the beginning of the year, extending its 12-month returns to 154.05%. The stock closed at $111.73 per share on August 10, 2021.
Here is what LRT Capital has to say about TFI International Inc. in its Q2 2021 investor letter:
“TFII International (formerly known as Transforce) is a recent addition to our portfolio – it is a Canadian logistics company with exceptional management operating in a consolidating industry. TFII came to our attention when they announced their purchase of the US operations of UPS Freight on January 25th, 2021. The company has a long history of growth through acquisition. Long time CEO Alain Bedard is fond of telling investors that he would rather own Scotiabank and get a 3% dividend than make deals that result in 3% returns57. This Canadian company also recently dual-listed in the United States.
UPS Freight, recently acquired by TFII, is a less-than-truckload (LTL) operation. LTL operations can build scale-based cost advantages as they require the consolidation of shipments in local hubs. This lends LTL operators to develop competitive moats based on local network density creating barriers to entry, as opposed to pure long-term trucking which is open to competition from anyone able to lease a truck. Pure play LTL companies such as SAIA, Inc. (SAIA) and Old Dominion Freight Line (ODFL) have historically generated very attractive returns for shareholders. Prior to the announced acquisition TFI already generated excellent returns for shareholders through very efficient operations and good capital allocation. Through the acquisition of UPS Freight US, the company immediately became one of the largest players in the US LTL market. The relatively low price paid for the asset (5.3x EBITDA pre-synergies, and the fact that UPS is taking a $500 million accounting charge on the deal) suggests TFII got a good deal. ODFL and SAIA both trade at over 15x EV/EBITDA.
We expect earnings to rise sharply at TFII over the next twelve months as the economy accelerates postCovid. We are currently also long shares of Saia, Inc. (SAIA), the LTL operator headquartered in Georgia, based on the same investment thesis. Shares of Saia, Inc., are up +25 % year-to-date and +87.3% over the past twelve months.
Shares are +118.42% year-to-date and +165.39% over the past twelve months.”
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Based on our calculations, TFI International Inc. (NYSE: TFII) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. TFII was in 19 hedge fund portfolios at the end of the first quarter of 2021, compared to 10 funds in the fourth quarter of 2020. TFI International Inc. (NYSE: TFII) delivered a 26.82% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.
