Gurus Hitch a Ride With Landstar

Landstar System (LSTR - commentary - Cramer's Take) is the eighth-largest trucking company in the world on the basis of 2005 revenue, yet it doesn't own a single truck. It has invested in advanced communications and computer systems and uses a network of about 23,000 independent contractors to do the actual hauling.

The company is hauling off growth at a nice clip. Annual revenue grew from $2 billion in 2004 to $2.5 billion in 2005, and it expects to reach $6 billion by 2013.

This is a company with a solid reputation, relatively low overhead and a business that enjoys repeat orders from customers. This makes it a company after Warren Buffett's heart.

The Buffett Strategy

The company has predictable earnings -- they haven't gone down once in the past 10 years. Debt is low (it doesn't even equal one year's worth of earnings), and return on equity has averaged a robust 31.5% over the past 10 years. Also, management has earned 24.6% annually on retained earnings on the basis of the gain in EPS over the past 10 years.

Given the company's performance and current stock price, the strategy estimates investors will earn about 20.1% a year over the next 10 years from the shares. That's a very acceptable return by any definition.

The O'Shaughnessy Strategy

My strategy based on the investing style of James P. O'Shaughnessy also indicates it would be a good move to hitch a ride with Landstar. This strategy wants a company that's got a market cap in excess of $150 million (Landstar's is $2.6 billion). Landstar's EPS has increased every year for the last five years, and its price-to-sales ratio is a cheap 1.0, well below the strategy's maximum of 1.5. Finally, its relative strength puts it among the top 50 stocks screened by the previous measures.

These two strategies, and Landstar's long-term performance, suggest that the stock is reasonably priced and that, like a semi barreling down an interstate in full control of its destiny, growth is likely to continue at a steady pace.

Landstar is a way to take advantage of the country's surging economy, which has boosted transportation of goods, without having to own or drive a rig yourself.

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John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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