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Wedgewood Partners: “Old Dominion (ODFL)’s Business is Booming”

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Wedgewood Partners, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 11.8% was recorded by the fund for the first half of 2021, outperforming the S&P 500 that delivered an 8.6% return for the same period, but slightly below the 11.9% gain of Russell 1000 Growth Index. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Wedgewood Partners, the fund mentioned Old Dominion Freight Line, Inc. (NASDAQ: ODFL), and discussed its stance on the firm. Old Dominion Freight Line, Inc. is a Thomasville, North Carolina-based transport company, that currently has a $29.4 billion market capitalization. ODFL delivered a 30.11% return since the beginning of the year, extending its 12-month revenues to 36.21%. The stock closed at $253.94 per share on July 16, 2021.

Here is what Wedgewood Partners has to say about Old Dominion Freight Line, Inc. in its Q2 2021 investor letter:

"Old Dominion’s business is booming. It previously invested in enough shipping capacity to handle the demand surge brought on by the pandemic and exacerbated by the “V-shaped” economic recovery in the U.S. In the Company’s last reported March quarter, revenue grew by +14% and an industry-leading 76% operating ratio, substantially better than last year, which drove a +53% increase in earnings per share. Much of Old Dominion’s competition has significantly under-invested in less-than-truckload (LTL) capacity, choosing to pursue integrated solutions or in some cases completely divesting LTL. In contrast, Old Dominion routinely spends a multiple of its depreciation on capital expenditures, to where it estimates it has close to a constant +25% excess capacity compared to most competitors. Plus, the Company can extend at very favorable pricing. We expect to own Old Dominion for some time, as this aggressive but prudent reinvestment strategy has yielded attractive returns on capital while driving double-digit revenue growth."

States with the Best Roads in America
States with the Best Roads in America

Rasica/Shutterstock.com

Based on our calculations, Old Dominion Freight Line, Inc. (NASDAQ: ODFL) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Old Dominion Freight Line, Inc. was in 40 hedge fund portfolios at the end of the first quarter of 2021, compared to 50 funds in the fourth quarter of 2020. ODFL delivered a 1.02% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.