Microsoft Corporation (MSFT), The Coca-Cola Company (KO), C.H. Robinson Worldwide, Inc. (CHRW) – Yacktman Asset Management’s Top Buys: 2 Potential Longs, 1 to Avoid

C.H. Robinson: Secular challenges

C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) is a leading third party logistics (3PL or in other words truck brokerage) company in the U.S. The industry is facing increased competition from new players like XPO Logistics while the demand has remained stable over the last couple of years.

The improvement in technology has also adversely affected C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW)’s competitive advantage. In simple language, 3PL companies like C.H. Robinson connect clients who need to haul their goods to the truckers who are in need of clients. Clients are able to get truckers at the right price by using these services, and the truckers are able to fill in their empty routes and increase utilization. With high-tech services like openmile, the manual approach of C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) is getting outdated and becoming cost ineffective.

In addition to increased competition, the fact that we are at a late stage in the economic cycle doesn’t help the company either. During 2008-09, when the economy was slow, many small truckers were having difficulty in finding clients and thus were ready to pay a relatively higher fee to the 3PL companies like C.H. Robinson. However, with the economy recovering, C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW)’s broking fees has compressed a bit. The company’s PE valuations are at decade low levels. However, I will still recommend avoiding the stock given the secular challenges in the industry.

Conclusion

To sum up, Microsoft Corporation (NASDAQ:MSFT)’s business is in transition and its non PC enterprise and cloud computing segments are likely to drive growth going forward. The Coca-Cola Company (NYSE:KO) is a good defensive bet, while I would recommend avoiding C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) given the secular challenges in the industry.

The article Yacktman Asset Management’s Top Buys: 2 Potential Longs, 1 to Avoid originally appeared on Fool.com and is written by Ash Sharma.

Ash Sharma has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. The Motley Fool owns shares of Microsoft. Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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