Who says you need to pay a premium multiple for the stocks of fast-growing businesses?
After a tumultuous 2018, there are plenty of fundamentally impressive growth stocks out there with valuations that are more indicative of a value stock. As an investor, one should always strive to discover mispriced securities, because that’s how real excess risk-adjusted returns are achieved over the long run.
Moreover, the TSX index is chock-full of quality growth companies that have been overlooked at the international level due to their domicile, and a potential lacking of a dual-listing in more popular U.S.-based exchanges. While that may be seen as a negative, it’s actually a positive for Canadian stock pickers who can spot underpriced winners and hang on to them for years (or decades) at a time.
While I could give you a list of underpriced growth stocks, I’d like to draw your attention to one of the more unappreciated names out there: TFI International (TSX:TFII), a transport and logistics company with one of the largest trucking fleets in North America.
As a Foolish investor, you’re probably aware of how critical the railroads are to the Canadian economy. Some folks think that the rails are the backbone of the economy. I’d take it a step further by saying that the rails are the heart of the economy, and the truckers are the blood vessels (the arteries, veins, and capillaries) of the economy.
You can’t have one without the other, and although rails are seen as “moatier” businesses with a higher capacity for long-term dividend growth, I believe most investors are heavily discounting the truckers, which could command a similar magnitude of dividend growth throughout many years.
Although seemingly obvious, there are some places that the rails can’t reach. That’s where the truckers come in, and it’s a huge reason why Canadian National Railway acquired a trucking firm called TransX to deal with the overwhelming volumes that’ll be on the horizon in spite of the global economic slowdown.
TFI keeps on trucking
TFI took a nasty 30% peak-to-trough plunge last year, and although the stock has recovered a portion of the losses, I think there’s a heck of a lot of upside to go when you consider the huge fundamental improvements that have occurred over the past year and a half.
The trucking firm had less-than-stellar operational efficiencies, which were revealed in 2017, causing a fairly drastic correction to shares. Since the flop, TFI has improved itself to once again become a high-level operator in the trucking scene.
Economic slowdown or not, goods are going to need to move from point A to point B, and although volumes may be more muted than anticipated initially, one has to remember that as the blood vessels of the economy, the company will rise up again, like it has so many times in the past.
At the time of writing, TFI trades at a 10.2 forward P/E, and a 2.2 P/B, both of which are lower than the company’s five-year historical average multiples of 28.9 and 2.4, respectively. The stock is cheap, and although a slowdown may be in the cards, one can’t help but applaud the company’s 9.4% and 12.6%, in top- and bottom-line CAGR, respectively, experienced over the last decade.
Foolish takeaway on TFI
Looking ahead, TFI appears like a double-digit revenue and earnings grower, and at just 10.2 times next year’s expected earnings, I think investors are paying a dime to get a dollar with shares hovering around $38 and change. It’s the perfect stock for your TFSA, and if you have space, you may want to consider initiating a position today.
Stay hungry. Stay Foolish.
