Ensemble Capital, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. In the letter, the fund discussed why they see so much new value being created in the years ahead, the value that their portfolio of companies is helping to develop. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Ensemble Capital, in its Q3 2021 investor letter, mentioned Landstar System, Inc. (NASDAQ: LSTR) and discussed its stance on the firm. Landstar System, Inc. is a Jacksonville, Florida-based transport company with a $6.3 billion market capitalization. LSTR delivered a 22.60% return since the beginning of the year, while its 12-month returns are up by 30.08%. The stock closed at $165.09 per share on October 18, 2021.
Here is what Ensemble Capital has to say about Landstar System, Inc. in its Q3 2021 investor letter:
“Landstar: The global supply chain has been in the news a lot in the past eighteen months. In 2020, the threat of COVID and related lockdowns shuttered “non-essential” production. While most logistics companies were considered “essential,” they naturally scaled back as well. Layoffs or furloughs were common. Some cargo ships, planes, and trucks were temporarily taken off-line as the world sorted itself out.
And then just like that, the world economy came roaring back – and faster than expected. The American consumer in particular started spending and the global supply chain was not fully prepared for it. Dozens of cargo ships are currently stuck offshore waiting to unload at the port of Los Angeles, warehouses are full, trucks are hard to come by, and freight rates have surged higher due to the supply and demand imbalance. In a recent Financial Times article, the CEO of APM Terminals (a division of Maersk) said, “We need lower [consumer demand] growth to give the supply chain time to catch up, or differently spread out growth.”
Despite rising freight prices, new long-haul or “truckload” drivers have been slow to get in on the action. In August, one fleet owner was so in need of drivers it offered up to $20,000 as sign-on bonuses for eligible drivers. In a perfectly rational market without barriers to entry or exit, you’d expect drivers to jump on these large signing bonuses on top of more attractive base pay.
So, what’s going on? Put simply, there aren’t enough young people coming up the ranks to offset veteran driver retirements. The average age of an American truck driver is between 46 and 50 years old and early retirements are common. Veterans understand well that it’s a cyclical business and the end of upcycles often spurs them to exit the industry. In 2019, the American Trucking Association estimated the industry was short about 60,000 drivers and unless more young people entered the industry, the under-supply could swell as high as 160,000 drivers by 2028. And that was before Covid hit. Since then, industry employment has fallen even further…” (Click here to see the full text)
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Based on our calculations, Landstar System, Inc. (NASDAQ: LSTR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. LSTR was in 16 hedge fund portfolios at the end of the first half of 2021, compared to 15 funds in the previous quarter. Landstar System, Inc. (NASDAQ: LSTR) delivered an 8.70% 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.
