RealMoney Silver - Pick ABFS for the Long Haul

Pick ABFS for the Long Haul
By John Reese
RealMoney.com Contributor
10/26/2007 10:56 AM EDT

If you want to take the heartbeat of the nation's economy, one of the best places to start is with trucking companies. When the economy is in high gear, so are the country's shippers, and when the economy shifts into reverse, truckers soon start heading in the same direction.

That is why a bet on a trucking company is, to a degree, a proxy bet on the economy. I am no seer, so I cannot tell you where the economy is headed, but I am overall quite optimistic about the economy, which is why I decided to see if there was a trucking company I could recommend at this time.

I figure a star performer among trucking companies should be a long-term star performer as an investment. When things get a bit tough in the economy, a well-run trucking firm should still do OK, and when the economy is on a roll, such a trucker should blow past the competition without even having to floor the gas pedal.

Searching through the computerized investment strategies I use, which are based on the thinking of several of Wall Street's best investors, I found a company in the out-of-the-way state of Arkansas (which, by the way, has produced a number of star performers, including Wal-Mart (WMT) , Dillard's (DDS) department stores and Tyson Foods (TSN) ).

The trucker that has the attention of my strategy based on the approach made popular by Kenneth Fisher -- a renowned strategist, Forbes columnist and money manager -- is Arkansas Best (ABFS) , which traces its roots to 1923. More than 90% of the company's revenue comes from its shipping subsidiary, ABF Freight System. The remainder is generated by third-party vehicle maintenance company FleetNet America and information technology service provider Data-Tronics.

One reason the Fisher strategy believes Arkansas Best will pass many other investments is its price-to-sale ratio, a measure of how much you pay for sales. The lower the P/S ratio, the better, with a P/S ratio below 0.75 being considered a tremendous value. Arkansas Best is a tremendous value based on this variable -- its P/S is an impressive 0.43.

This strategy views debt as relatively undesirable because the more debt a company has, the more risk to the investor. Arkansas Best has hardly any debt (debt is 2.96% of equity), and that is another real positive.

This methodology looks for companies with an inflation-adjusted EPS growth rate greater than 15%. Arkansas Best just makes the grade with a growth rate of 15.1%. My Fisher strategy also values companies with positive free cash per share, and Arkansas Best once again gets a thumbs-up, having 6 cents of free cash per share. The last criterion is for a net profit margin of 5% or better over the past three years, with Arkansas Best passing this test, too.

Overall, Arkansas Best gets into the Fisher winner's circle by being considered a "super stock." This is a strong testament to the company's desirability as an investment.

It is worth pointing out that another strategy, one I base on Benjamin Graham's writings, also likes this company. This strategy likes its very low level of debt, just like the Fisher strategy. Also, the Graham strategy looks for EPS to increase by at least 30% over the past 10 years and not be negative at any time during the past five. Arkansas Best has not lost any money in the past five years, and EPS has grown a blockhead-busting 3,928% during the past decade.

Further, the current P/E ratio must not be more than 15; Arkansas Best's P/E is 11.46. One more Graham criterion points to this trucker as being a success: its price-to-book ratio multiplied by its P/E comes to 15.13, nicely below the 22 maximum allowed.

Arkansas Best has long been an industry leader. Its reputation is built on the quality of its management and performance. This is a trucker you can count on for the long haul.