It may have gotten lost in the shuffle of the Brett Kavanaugh saga or The New York Times bombshell about the Trump family’s financial dealings, but investors breathed a sigh of relief Oct. 1 when President Trump announced a new agreement under which the U.S., Mexico and Canada are expected to replace the North American Free Trade Agreement.

Trucking companies XPO Logistics XPO, -1.80% and C.H. Robinson Worldwide CHRW, -0.27% are among the biggest beneficiaries of the deal, said Bill Barker, lead manager of the Motley Fool Small-Mid Cap Growth Fund TMFGX, -1.12% along with Charles Travers.

XPO Logistics

XPO was the largest holding of the Motley Fool Small-Mid Cap Growth Fund as of Sept. 30, making up 7.7% of a portfolio, which is relatively concentrated, usually with 40 to 45 stocks. CEO Bradley Jacobs gained control of Express-1 in 2011 and renamed the company XPO Logistics before bringing the new, expanded company public in 2012.

XPO, based in Greenwich, Conn., itself has expanded through a continual series of acquisitions and is expected to report annual sales of about $17.6 billion, increasing from $177 million in 2011. The company operates in many areas of transportation (including freight brokerage), logistics and supply-chain management.

XPO’s sales (adjusted for acquisitions) are projected to increase 14% in 2018 and 8% in 2019, and its adjusted earnings per share (EPS) to increase 42% this year and another 26% in 2019, according to consensus estimates among analysts polled by FactSet. The shares have returned 22% this year, beating the S&P 500 Index’s SPX, -0.55% 10% return.

In an interview Oct. 4, Barker said Trump’s new trade agreement with Mexico and Canada has few substantive changes that will affect the trucking industry, meaning “everyone can return to normal life.” He was enthusiastic about the company’s announcement on Oct. 3 that it would deploy 5,000 “intelligent robots” to assist its logistics employees at various logistics facilities. In July, Barker’s colleague Bryan Hinmon called XPO “a technology company disguised as a trucking firm,” as he described its competitive advantage.

Motley Fool Asset Management Bill Barker, lead manager of the Motley Fool Small-Mid Cap Growth Fund.

Barker referred to published reports late last year that Home Depot HD, -1.24% and Amazon.com AMZN, -1.04% might enter a bidding war to keep each other from acquiring XPO. That, of course, didn’t happen, and one wonders why XPO’s Jacobs would sell such a hot company in the middle of an incredible growth cycle. XPO’s technological advantage “positions them well ... for automated trucking,” Barker said, while being careful to say he could not predict how long it would take for automated trucking systems to have a major effect on the market.

During the company’s first-quarter earnings conference call May 3, Jacobs said he expected “a big acquisition or two medium-sized acquisitions [to be] announced by the end of this year.”

In the second-quarter call Aug. 2, Jacobs walked back his previous comments, stressing patience: “We are disciplined. We are only going to do a deal when we have a deal that will likely create immense shareholder value. And the reason that we feel that patience is that if we continue to grow EBITDA [earnings before interest, tax, depreciation and amortization] in the 15%, 16%, 17%, 18% range, with the leverage we have on the balance sheet, and then taking free cash flow and paying down debt, each $1 we pay down creates a $1 of equity value,” he said.

Still, the domestic trucking industry is “incredibly fragmented,” even though it is consolidating, Barker said. So it is reasonable to expect Jacobs to remain acquisitive.

C.H. Robinson Worldwide

C.H. Robinson Worldwide is a smaller holding of the Motley Fool Small-Mid Cap Growth Fund and is not as diversified as XPO. But the presence of so many smaller operators in the domestic trucking industry works to its advantage in freight brokerage.

According to Barker, there are 185,000 U.S. companies that own one to five trucks, and 22 companies that own 4,000 or more.

“If you are on the highway, open your eyes and look at how many trucks there are, and how many have brands you recognize, such as J.B. Hunt, Swift and XPO, which bought Conway, and many that are unmarked,” he said.

In its 2017 annual 10-K report, C.H. Robinson said it “utilized approximately 73,000 contracted transportation companies, including motor carriers, railroads (primarily intermodal service providers), and air and ocean carriers in 2017.”

The Eden Prairie, Minn.-based company is expected to increase sales 13% this year and 5% in 2019, with EPS projected to rise 25% this year and 11% in 2019.

Barker described the freight brokerage business as “cyclical,” and went on to say “it is good at two different points: When there are not enough trucks for too many goods, and when there are too many trucks for not enough goods.”

He described the current market as “pretty tight,” with “a lot of demand because of how strong the economy is and coming into the holiday season.”

“It is a good time for truckers,” he added.

C.H. Robinson Worldwide’s shares have risen 11% this year.

Other truckers and shipping companies

Here’s a look at the stocks in the S&P 1500 Composite Index that FactSet places in the trucking or air freight/couriers industries, plus XPO, with projected sales and EPS growth estimates based on consensus estimates among analysts polled by FactSet. The two companies Barker discussed are listed first, with the rest in alphabetical order:

Company Ticker Total return - 2018 through Oct. 4 Projected change in sales - 2018 Projected change in sales - 2019 Projected change in EPS - 2018 Projected change in EPS - 2019 XPO Logistics Inc. XPO, -1.80% 22% 14% 8% 42% 26% C.H. Robinson Worldwide Inc. CHRW, -0.27% 11% 13% 5% 25% 11% ArcBest Corp. ARCB, -11.55% 34% 9% 6% 45% 7% Atlas Air Worldwide Holdings Inc. AAWW, -3.97% 6% 24% 11% -20% 3% Expeditors International of Washington Inc. EXPD, -0.37% 13% 15% 6% 18% 6% FedEx Corp. FDX, -1.26% -3% 9% 5% 4% 16% Forward Air Corp. FWRD, -2.88% 23% 20% 6% 8% 13% Heartland Express Inc. HTLD, -2.36% -20% 4% 3% -11% 16% Hub Group Inc. Class A HUBG, -1.09% -8% 6% -10% -36% -1% J.B. Hunt Transport Services Inc. JBHT, -0.52% 6% 20% 11% -13% 20% Knight-Swift Transportation Holding Inc. Class A KNX, -2.19% -25% 121% 6% -47% 18% Landstar System Inc. LSTR, -1.31% 13% 27% 5% 44% 7% Marten Transport, Ltd. MRTN, -2.33% 2% 11% 10% -41% 21% Old Dominion Freight Line Inc. ODFL, -1.68% 18% 20% 8% 23% 11% Saia Inc. SAIA, -4.19% 1% 19% 9% 11% 18% United Parcel Service Inc. Class B UPS, -0.06% 1% 9% 6% 29% 9% Werner Enterprises Inc. WERN, -2.65% -9% 16% 8% -24% 17% Source: FactSet

You can click on the tickers for more information about each company, including news, ratings, price ratios and financials.

Knight-Swift’s KNX, -2.19% tremendous growth figures result from the merger of Knight Transportation and Swift Transportation (with Knight technically the surviving company) in September 2017, along with the combined company’s deal to acquire Abilene Motor Express.

Fund holdings

The Motley Fool Small-Mid Cap Growth Fund was established in 2010 and has $318 million in assets. The fund is ranked three stars out of five by Morningstar. Its average return over the past five years has been 11.1%, which trails the Russell 2500 Growth Index R25IG, -0.93% which has had an average return of 11.8% over the same period.

Barker said that although the fund can purchase small-cap or mid-cap stocks, it has been leaning more to a mid-cap strategy.

Here are the fund’s top 10 holdings as of Sept. 30:

Company Ticker Industry Share of fund Total return - 2018 through Oct. 4 Total return - 3 years Total return - 5 years XPO Logistics Inc. XPO, -1.80% Trucking 7.7% 22% 309% 429% Align Technology Inc. ALGN, -1.34% Medical Specialties 5.0% 61% 529% 681% Paycom Software Inc. PAYC, -1.17% Software 4.1% 75% 280% N/A Cooper Companies Inc. COO, -0.35% Medical Specialties 4.0% 23% 80% 111% Texas Roadhouse Inc. TXRH, +0.56% Restaurants 4.0% 27% 87% 179% GrubHub Inc. GRUB, -0.53% Internet Software/ Services 3.9% 82% 406% N/A ResMed Inc. RMD, +0.02% Medical Specialties 3.6% 31% 125% 124% Paylocity Holding Corp. PCTY, -1.81% Software 3.3% 55% 146% N/A Splunk Inc. SPLK, -1.15% Information Technology Services 3.3% 35% 99% 78% LCI Industries LCII, -1.32% Misc. Manufacturing 3.2% -36% 61% 98% Source: FactSet