Growth stocks are down these days, but if you're a long-term investor, you know that bear markets present great buying opportunities. That's because otherwise promising stocks go on sale, especially in cyclical industries like industrials, benefiting investors with longer time horizons who can patiently wait for the economic recovery.
Keep reading if you're looking for two such stocks that seem well priced today.
A disruptive e-commerce stock
CarParts.com (NASDAQ: PRTS) is still under most investors' radar, even as the small-cap e-commerce stock got a jolt during the pandemic thanks to the boom in internet sales of car parts and do-it-yourself repairs.
The company has been around since the early days of the internet, but new management revitalized the business. It rebranded from U.S. Auto Parts Network, streamlined it under the CarParts.com brand, and expanded with new warehouses allowing it to serve a majority of the country with two-day shipping or sooner.
The auto parts industry has been slow to shift to the e-commerce channel as there are a large number of individual stock-keeping units (SKUs) in car parts, making inventory management a challenge. And the large size of some parts also makes shipping more difficult.
CarParts.com has differentiated itself with its private-label products, undercutting the competition on price. It has a solid base of DIY customers and is expanding into the do-it-for-me category by partnering with mechanics in a new pilot program, allowing customers to order parts and take them to get them installed.
The company's first-quarter earnings report isn't going to blow anyone away, but that shouldn't scare off long-term investors. Revenue rose 6% to $175.5 million, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were flat at $9.4 million.
Management noted challenges from inflation and the recessionary environment as its lower-income customers cut back on spending, but the stock looks well priced after the recent pullback, trading at roughly 10 times adjusted EBITDA.
CarParts.com should deliver accelerating growth once the economy starts to improve, with initiatives like do-it-for-me and an expanding warehouse footprint helping as well.
With the share price reflecting the macro headwinds, now could be a great time to buy the stock as the upside potential over the long term looks considerable.
A logistics company in a transformation
XPO(NYSE: XPO) has slimmed down considerably over the last few years, going from a conglomerate in the transportation and logistics industry to a pure-play less-than-truckload (LTL) company.
In 2021, it spun off GXO Logistics, its former contract logistics arm. And after the market responded favorably to that move, it did it again, separating its truck brokerage division, which is now known as RXO.
Former CEO Brad Jacobs had argued that XPO was being undervalued due to a conglomerate discount. The business had grown too complicated after making multiple acquisitions over the previous decade, and becoming a pure-play LTL carrier gives it direct peers in the market like Old Dominion Freight Line and Saia to help with comparisons.
Now, XPO is focused on streamlining its expenses, expanding its network, and driving profitability, and the market has liked what it's seen in the last several weeks.
First, the stock soared after the company said it hired Dave Bates as its new chief operating officer. Bates comes to the company after a 27-year career with Old Dominion, the company generally considered to be the best-in-class operator in LTL. At Old Dominion, he was responsible for the day-to-day operations in North America for the last 12 years.
Earlier this month, XPO got another round of applause from investors after it delivered a solid first-quarter earnings report in a tough environment.
Revenue rose just 1% to $1.91 billion, a reflection of macroeconomic headwinds as tonnage per day fell 1.8%, but it was able to increase prices by 2.4%, a reflection of better customer-satisfaction scores, improved on-time rates, and less breakage. That helped adjusted EBITDA increase 14% to $210 million.
Over the long term, the company is targeting a compound annual growth rate of 11% to 13% in adjusted EBITDA through 2027. It also expects adjusted operating ratio to improve by at least 600 basis points and sees compound annual revenue growth at 6% to 8%.
If the company can hit those numbers, it should be a winner since the stock trades at less than 7 times run-rate EBITDA.
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Jeremy Bowman has positions in CarParts.com and XPO. The Motley Fool has positions in and recommends Old Dominion Freight Line. The Motley Fool recommends XPO. The Motley Fool has a disclosure policy.
